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Orders to Supply as Substitutes for Commitments to Aftermarkets

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  • Zhiqi Chen
  • Thomas W. Ross

Abstract

A number of recent antitrust cases in Canada and other countries have involved durable goods manufacturers refusing to supply proprietary parts to independent service organizations. Earlier work suggested that the inability of manufacturers to commit to low aftermarket prices creates an inefficiency that might be removed by a judicial order to supply. This paper examines this view critically with a specific model of repairs and demonstrates that under plausible conditions there is no welfare loss due to the inability to commit. It goes on to show that an order to supply can create its own distortion and welfare loss if it encourages inefficient substitution of inputs in the production of repairs.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 31 (1998)
Issue (Month): 5 (November)
Pages: 1204-1224

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Handle: RePEc:cje:issued:v:31:y:1998:i:5:p:1204-1224

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Cited by:
  1. Paul Isely & Matthew Roelofs, 2004. "Primary market and aftermarket competition in the bicycle component industry," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(18), pages 2097-2102.
  2. Keisuke Hattori & Amihai Glazer, 2013. "How to Commit to a Future Price," Working Papers 131402, University of California-Irvine, Department of Economics.
  3. Zhiqi Chen & Thomas Ross & W. Stanbury, 1998. "Refusals to Deal and Aftermarkets," Review of Industrial Organization, Springer, Springer, vol. 13(1), pages 131-151, April.
  4. Miller, David A., 2008. "Invention under uncertainty and the threat of ex post entry," European Economic Review, Elsevier, Elsevier, vol. 52(3), pages 387-412, April.
  5. Michael Waldman, 2010. "Competition, Monopoly, and Aftermarkets," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 26(1), pages 54-91, April.
  6. Zhiqi Chen & Tom Ross, . "Refusals to Deal and Orders to Supply in Competitive Markets," Carleton Industrial Organization Research Unit (CIORU), Carleton University, Department of Economics 94-06, Carleton University, Department of Economics.
  7. Hodaka Morita & Michael Waldman, 2010. "Competition, Monopoly Maintenance, and Consumer Switching Costs," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 2(1), pages 230-55, February.

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