We investigate how bundling affects investment in product quality, and derive welfare implications. A monopolist in a primary market competes with a rival in a complementary market. Bundling is the monopolist’s preferred strategy, since it either extracts surplus from the rival’s investment,...

We show how a monopolist in a primary market uses mixed bundling to extract surplus from quality-enhancing investment by a single-product rival in a complementary market, or even force the rival to provide low quality. In our model, bundling does not hinge on commitment ability. Although we...