Exercising Market Power in Proprietary Aftermarkets
AbstractOver 20 recent antitrust cases have turned on whether competition in complex durable-equipment markets prevents manufacturers from exercising market power over proprietary aftermarket products and services. We show that the price in the aftermarket will exceed marginal cost despite competition in the equipment market. Absent perfectly contingent long-term contracts, firms will balance the advantages of marginal-cost pricing to future generations of consumers against the payoff from monopoly pricing for current, locked-in equipment owners. The result holds for undifferentiated Bertrand competition, differentiated duopoly, and monopoly equipment markets. We also examine the effects of market growth and equipment durability. Copyright (c) 2000 Massachusetts Institute of Technology.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 9 (2000)
Issue (Month): 3 (06)
Contact details of provider:
Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- Severin Borenstein & Jeffrey K. Mackie-Mason & Janet S. Netz, 2000. "Exercising Market Power in Proprietary Aftermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(2), pages 157-188, 06.
- Severin Borenstein & Jeffrey MacKie-Mason & Janet Netz, 1996. "Exercising Market Power in Proprietary Aftermarkets," Working Papers _002, University of California at Berkeley, Haas School of Business.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Aidan Hollis, 1996. "Exclusivity Restrictions in Markets with Adverse Selection: The Case of Extended Warranties," Working Papers ecpap-96-03, University of Toronto, Department of Economics.
- Zhiqi Chen & Thomas Ross & W. Stanbury, 1998. "Refusals to Deal and Aftermarkets," Review of Industrial Organization, Springer, vol. 13(1), pages 131-151, April.
- Paul Isely & Matthew Roelofs, 2004. "Primary market and aftermarket competition in the bicycle component industry," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2097-2102.
- Östlin, Johan & Sundin, Erik & Björkman, Mats, 2008. "Importance of closed-loop supply chain relationships for product remanufacturing," International Journal of Production Economics, Elsevier, vol. 115(2), pages 336-348, October.
- Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.
- Didier LAUSSEL & Ngo Van LONG & Joana RESENDE, 2014. "Network E¤ects, Aftermarkets and the Coase Conjecture : A Dynamic Markovian Approach," Cahiers de recherche 06-2014, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Hartmann, Wesley R. & Nair, Harikesh S., 2007. "Retail Competition and the Dynamics of Consumer Demand for Tied Goods," Research Papers 1990, Stanford University, Graduate School of Business.
- Heubrandner, Florian & Skiera, Bernd, 2010. "Time preference and the welfare effects of tie-in sales," Economics Letters, Elsevier, vol. 108(3), pages 314-317, September.
- Severin Borenstein & Jeff MacKie-Mason & Janet Netz, 1994. "Tying and Market Power," Industrial Organization 9401001, EconWPA.
- Ben O. Smith, 2013. "Piracy, Awareness and Welfare in a Required Aftermarket," 2013 Papers psm164, Job Market Papers.
- Miao, Chun-Hui, 2010. "Consumer myopia, standardization and aftermarket monopolization," European Economic Review, Elsevier, vol. 54(7), pages 931-946, October.
- Glenn Ellison, 2004.
"A Model of Add-on Pricing,"
Economics Working Papers
0049, Institute for Advanced Study, School of Social Science.
- Shastitko, A., 2012. "Competition on Aftermarkets: the Subject Matter and Policy Applications," Journal of the New Economic Association, New Economic Association, vol. 16(4), pages 104-126.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.