Essays on tying in oligopolistic markets and on survival in financial markets

This dissertation consists of three separate chapters. Chapters 1 and 2 are from the field of Industrial Organization and explore tying, its welfare effects, and consequences for competition policy. Chapter 3 is from the field of Finance and investigates survival in financial markets. The variety in the topics of the chapters reflects my research interests.; Chapters 1 and 2 study the profitability of tying for a multi-product firm and its consequences for welfare and consumers. The concept of tying is well established in the theoretical literature on industrial organization, as well as in the anti-trust literature. Classical "leverage hypothesis" claims that a firm with monopoly power in one market can use tying to foreclose and hereby monopolize a second market. This hypothesis has been subject to the well known "Chicago critique" that with complementary goods there is "only one monopoly rent" and the monopolistic position in the first market is sufficient to extract this rent. The responses to the Chicago critique in the literature have developed in two directions. The first introduces a second source of profit, whereas the second suggests that monopolizing a complementary segment may protect a firm's position in the first market. Chapter 1 is related to the first response, and Chapter 2 to the second one.; Chapter 1 analyzes the profitability of tying by a multi-product firm which competes against two single-product firms. The products are assumed to be independent: One of them is horizontally differentiated and the other is homogeneous. It is shown that even when neither market is monopolized by the multi-product firm, it can use tying to increase its own profit. In such a case tying has a negative welfare effect. In addition, under certain conditions, tying may benefit all firms.; Chapter 2 develops the topic further and analyzes tying and bundling as an entry deterrence tool. Unlike the current literature, it shows that a multi-product firm can defend its monopoly position in one market via tying even when it does not have significant market power in another market. Such a strategy, however, leads to welfare losses and cannot be prevented by a merger or cooperation among rivals. This is shown on a model with two complementary goods, each of which is vertically differentiated and consumers' preferences for the goods are positively correlated. Some implications for competition policy are discussed.; Chapter 3 investigates survival in financial markets and contributes to the literature on market selection. It considers a finite time economy with random dividends paid in the last period. Agents observe public signals, based on which they update their estimates of dividends. Agents may use various updating rules and are considered to be of two types: sophisticated who are aware of their future beliefs and prices, and naive who are not. It is shown that among sophisticated agents, those with less accurate beliefs are driven out of the market when the number of signals is sufficiently large. On the other hand, in economies with naive agents only, even the ones with inaccurate beliefs may survive.