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.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 9 (2000)
Issue (Month): 3 (06)
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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.
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