Monopolists selling complementary products charge a higher price in a static equilibrium than a single multiproduct monopolist would, reducing both industry profits and consumer surplus. However, firms could instead reach a Pareto improvement by lowering prices to the single monopolist level. Olga Ukhaneva and her co-authors analyze administrative nationally-representative pricing data of railroad coal shipping in the U.S., comparing a coal producer that needs to ship from A to C, with the route passing through B, in two cases: (1) the same railroad owning AB and BC and (2) different railroads owning AB and BC. They find no price difference between the two cases, suggesting that the complementary monopolist pricing inefficiency is absent in this market. The authors rely on score blocking and machine learning algorithms to test the robustness of their results. The results have implications for royalty stacking and patent thickets, vertical mergers, tragedy of anti-commons, and mergers of firms selling complements.
Bio: Dr. Olga Ukhaneva is a Managing Consultant at Navigant Economics and a Visiting Senior Policy Scholar at the Center for Business and Public Policy at Georgetown University. Olga received her Ph.D. in economics from Georgetown University in 2015. She was a Post Doctoral Fellow at the Center for Business and Public Policy at Georgetown University from 2014 to 2015, and later joined McDonough School of Business as a Research Assistant Professor. Her research focuses on the telecommunications industry and myriad policy issues surrounding it.