2008 Headlines
Johnson School's Michael Waldman Wins Robert F. Lanzillotti Prize for Best Paper
Work on Antitrust Economics Takes Top Honors
May 27, 2008 | Ithaca, NY | Professor Michael Waldman received the prestigious Robert F. Lanzillotti Prize for Best Paper for his research titled "Why Tie a Product Consumers do not Use?" The prize for Best Paper in Antitrust Economics was presented on May 17 at the 2008 International Industrial Organization Conference in Arlington, Va. to Waldman, the Charles H. Dyson Professor of Management and a Professor of Economics at Cornell University's Johnson School.
This research provides a fascinating new explanation for tying that is not based on any of the standard factors: efficiency, price discrimination and exclusion. Tying, which is closely related to the practice of "bundling," is a well known marketing technique used in a wide variety of settings.
"I am honored to receive this award and to accept it at the IIOC conference with so many of my peers present," said Waldman. "The study offers some important findings in an area of study that is receiving increasing attention. In an era of fierce competition for consumer mindshare, we offer a new perspective on complementary products and how monopolists can take advantage of rival producers of complementary goods."
Waldman, along with co-authors Dennis Carlton of the University of Chicago and Joshua Gans of the University of Melbourne, proved through analysis how a monopolist has an incentive to tie an unpopular complementary good to its monopolized good in order to transfer profits from a rival producer of the complementary product. This occurs even when consumers – who have the option to use the monopolist's complementary good – do not use it. The tie provides the consumer with a valuable option, use the "free" packaged complementary good or spend additional money on a rival product. This option places downward pressure on what consumers are willing to spend on the rival product, and effectively transfers some of the rival's profits to the monopolist.
"We believe this new explanation for tying has wide applicability," said Waldman. "There are many instances in which a firm ties a complementary good when rivals sell superior complementary products, with the result that few consumers wind up using the monopolist's tied good. For example, this a good description of Microsoft's behavior in its tying of various complementary products such as instant messaging, movie and photo editing, and security programs."
Ultimately, the report concludes that regardless of whether the consumer uses the unpopular complementary product, the key is the profit shift from the rival producer to the monopolist.
The is the first year the Robert F. Lanzillotti Prize was awarded to recognize the best paper in antitrust economics presented at the International Industrial Organization Conference, the largest North American conference in the field of industrial organization.
