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Consumer myopia, standardization and aftermarket monopolization

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  • Miao, Chun-Hui

Abstract

In this paper, I show that the standard Bertrand competition argument does not apply when firms compete for myopic consumers who optimize period-by-period. I develop the model in the context of aftermarket. With overlapping-generations of consumers, simultaneous product offerings in the primary market and aftermarket establishes a price floor for the primary good. This constraint prevents aftermarket rents from being dissipated by the primary market competition. Duopoly firms earn positive profits despite price competition with undifferentiated products. Nonetheless, government interventions to reinforce aftermarket competition such as a standardization requirement may lead to the partial collapse of the primary market.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 54 (2010)
Issue (Month): 7 (October)
Pages: 931-946

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Handle: RePEc:eee:eecrev:v:54:y:2010:i:7:p:931-946

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Aftermarket Bertrand competition Bounded rationality Standardization;

References

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Citations

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Cited by:
  1. Michael D. Grubb, 2012. "Consumer Inattention and Bill-Shock Regulation," Boston College Working Papers in Economics 828, Boston College Department of Economics.
  2. Bubb, Ryan & Kaufman, Alex, 2013. "Consumer biases and mutual ownership," Journal of Public Economics, Elsevier, vol. 105(C), pages 39-57.
  3. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," NBER Working Papers 13822, National Bureau of Economic Research, Inc.
  4. Hossain, Tanjim & Morgan, John, 2006. "Shrouded Attributes and Information Suppression: Evidence from Field Experiments," Competition Policy Center, Working Paper Series qt9d72t101, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  5. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  6. Kosfeld, Michael & Sch├╝wer, Ulrich, 2014. "Add-on pricing in retail financial markets and the fallacies of consumer education," SAFE Working Paper Series 47, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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