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Refusals to deal, Price Discrimination and Independent Service Organizations

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Abstract

A number of recent Canadian and U.S. antitrust cases have involved allegations that manufacturers of durable products have refused to supply parts to independent service organization, apparently to monopolize the market for repairs of their products. This paper provides a theory of these strategies and considers the welfare implications of judicial orders to supply. The refusals here are seen as necessary to protect manufacturers' programs of price discrimination: Expensive repairs represent a way to select high-intensity, high-value users and charge them more. In addition to the usual ambiguity associated with the welfare effects of prohibitions of price discrimination, forcing competition in repairs can have the further damaging effect of reducing social welfare by inducing manufacturers to lower product quality. Copyright 1993 by MIT Press.

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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Industrial Organization Research Unit (CIORU) with number 93-01.

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Length: 33 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:car:ciorup:93-01

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Keywords: competition ; law;

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Cited by:
  1. Luis Cabral, 2008. "Aftermarket Power and Basic Market Competition," Working Papers 08-20, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
  3. Michael Waldman, 2010. "Competition, Monopoly, and Aftermarkets," Journal of Law, Economics and Organization, Oxford University Press, vol. 26(1), pages 54-91, April.
  4. Chen, Zhiqi & Ross, Thomas W., 1999. "Refusals to deal and orders to supply in competitive markets," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 399-417, April.
  5. Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.

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