Chapter I examines firms' incentives to conduct non-drastic R&D when they produce individual components of a system of complementary goods. Under various alternate assumptions about the timing of R&D, pricing, and contracting decisions, separate component ownership leads to higher prices and lower product quality relative to integrated ownership for three distinct reasons: pricing externalities, R&D externalities, and additional coordination problems. The existence and relative importance of "stand-alone" demands for the components have an important impact on the nature and uniqueness of equilibria. When the stand-alone market is relatively important the component producer acts as an "innovation leader" and underinvestment is mitigated. I analyze the implications of common institutional arrangements such as product bundling agreements and cooperative research ventures.; Chapter II analyzes the literature on the competitive effects of exclusive dealing. I outline various procompetitive rationales including the non-dilution of incentives, protection of relationship-specific investments, and the elimination of free riding on brand-name capital. I examine different anticompetitive foreclosure rationales and argue that these rely on common assumptions with regard to entry conditions, production technologies, diffusely held scarce inputs, and the nature of the contracting environment.; Chapter III analyzes the competitive impact of Microsoft's "per-processor" licensing agreements for marketing operating systems to computer hardware manufacturers. I describe the operating systems market and evaluate several competing explanations for Microsoft's use of these agreements, including the government's claim that they constituted de facto exclusive dealing arrangements that served to anticompetitively foreclose entry. Existing explanations focus incorrectly on the per-processor meter as the key element of the contracts. Instead the primary economic impact was due to the minimum commitment provisions and the long contract lengths. Furthermore, the evidence suggests that the contracts did not foreclosure entry but rather served to procompetitively price software. They functioned as two-part tariffs that allowed Microsoft to price discriminate, provide volume discounts, and set marginal price near marginal production cost. The per-processor meter served as an anti-fraud device and facilitated price discrimination.
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