A Theory of Monopoly of Complementary Goods

The theory of monopoly of complementary goods raises two important issues. First, when can a monopolist increase his net return by selling at least one of a set of complementary commodities at a price below its marginal cost? This paper shows that this practice is consistent with a maximum monopoly net return and rational customers who calculate correctly the cost of the combination of complementary commodities. Second, it is shown that a monopolist can increase his net return by forming groups of complementary commodities and selling these groups to different types of customers. It is a maintained hypothesis that the total cost of a set of complements is a linear function of the quantities. Hence, the theory relies on the nature of the demand conditions to explain these practices. The theory applies to tie-in sales, block booking, and resale price maintenance.