Antitrust enforcers typically assess monopolization on a market-by-market basis, focusing on the specific market under investigation while overlooking potential future impacts on competition or anticompetitive conduct in related markets.
In a recent article (here), Paolo Ramezzana takes a broader look at the issue by exploring how monopolization can propagate across complementary products and how integration between producers of such products might affect competitive outcomes. The article finds that monopolization of a product can give rise to “domino effects” by increasing the likelihood that the complementary products supplied by other firms will also be monopolized. It also finds that a merger between producers of complementary products can increase the profitability of monopolization, thus making it more likely that monopolization will occur, even when the integrated firm cannot leverage its monopoly power across products. This happens because the pricing efficiencies associated with integration make maintaining monopoly power in all products more profitable, resulting in what some commentators have called an “efficiency offense”.
These issues have become increasingly important in recent decades, particularly in fast-growing sectors that rely on systems of complementary components dominated by a few large firms. This is especially true for tech markets, where scale economies, network effects, and vertical restraints in licensing and distribution contracts create favorable conditions for monopolization. Examples that have attracted antitrust scrutiny include personal computers (e.g., Microsoft’s Windows OS and Intel’s microprocessors), mobile devices (e.g., Google’s Android OS, Qualcomm’s baseband chipsets, and NXP’s near-field communication chipsets), and aircraft manufacturing (e.g., GE’s jet engines and Honeywell’s avionics).
From an analytical standpoint, the article models a setting with two perfect complementary components, each produced by an incumbent monopolist facing an entry threat. Each monopolist can independently fend off such threat by signing up buyers to exclusive contracts. While such a strategy has obvious benefits for an incumbent (i.e., the maintenance of monopoly profits), it also entails costs, as buyers must be compensated for giving up cheaper alternatives.
When an incumbent monopolizes a component, it lowers the costs for other incumbents of monopolizing complementary components by (a) shrinking the demand for those components, thus reducing the number of buyers that other incumbents need to sign up to exclusivity and (b) reducing the amount of compensation per unit of profit that other incumbents need to pay these buyers. As a result, monopolization of other components becomes more profitable and thus more likely to occur in equilibrium.
If the incumbents merge, they can price their complementary products more efficiently (because of the well-known Cournot effect), which enhances their profitability and strengthens their incentives to pursue costly monopolization. For intermediate levels of entry costs, this can switch the equilibrium from one with entry to one with monopolization, ultimately harming consumers. However, for higher entry costs, entry does not occur regardless of whether the incumbents are merged. In this case, the merger benefits consumers by yielding lower prices. Note that, contrary to much of the existing literature, the analysis does not assume that the integrated firm has unchallenged monopoly power in any component and, thus, does not rely on a leverage theory of competitive harm.
These findings have implications for competition policy. From an antitrust perspective, they suggest that early intervention – or a commitment to future intervention – in one or very few crucial components can yield competitive outcomes for an entire system. Regarding merger policy, they suggest that, under certain conditions, a merger between firms producing complementary products can reduce competition even if the merged firm does not have unchallenged monopoly power in any product and cannot thus leverage that power into other products.
Entry deterrence, domino effects and mergers in markets for complements, IJIO Volume 99, March 2025