Extending the Monopoly:Four steps The argument:Use a monopoly in one market to get a monopoly in another The rebuttal:Doing that gets you no additional profit The more the punch cards cost the less people will pay for the computer The steel monopolist can push up the prices of autos without running auto companies Similarly for the wholesale monopolist:Let the retailers compete down their margins The puzzle:Then why do tie-in sales,vertical monopoly and RPM happen? ·Possible answers Tie in sales might be a way of price discriminating against heavy users Vertical integration from steel to autos (which didn't happen,but...) Could reduce the inefficiency due to charging auto companies a high price for steel And so giving them an incentive to substitute fiberglass or aluminum Holding up the retail price gets retailers to compete on non price dimensions Such as costly showrooms Which their competitors could free ride onExtending the Monopoly: Four steps • The argument: Use a monopoly in one market to get a monopoly in another • The rebuttal: Doing that gets you no additional profit • The more the punch cards cost the less people will pay for the computer • The steel monopolist can push up the prices of autos without running auto companies • Similarly for the wholesale monopolist: Let the retailers compete down their margins • The puzzle: Then why do tie-in sales, vertical monopoly and RPM happen? • Possible answers • Tie in sales might be a way of price discriminating against heavy users • Vertical integration from steel to autos (which didn’t happen, but …) • Could reduce the inefficiency due to charging auto companies a high price for steel • And so giving them an incentive to substitute fiberglass or aluminum • Holding up the retail price gets retailers to compete on non price dimensions • Such as costly showrooms • Which their competitors could free ride on