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Aftermarkets: The monopoly case

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  • Bijl, P.W.J. de

    (Tilburg University, Center for Economic Research)

Abstract

Consider a monopolist who sells a durable good, and repairs the good if it breaks down. Suppose that contracts that specify future repair prices cannot be written, so that there is an aftermarket" situation. When consumers are risk-averse, the monopolist chooses inefficiently high repair prices; if complete warranties were possible, he would fully insure consumers by guaranteeing to repair the good at a zero fee. To increase efficiency, the monopolist may attract a rival firm in the aftermarket, or lease the good. The latter option restores first-best efficiency

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1995-102.

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Date of creation: 1995
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Handle: RePEc:dgr:kubcen:1995102

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Related research

Keywords: Monopoly; Leasing; After Sales Service; Repair; microeconomics;

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  1. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn.
  2. Joseph Farrell and Carl Shapiro., 1988. "Dynamic Competition with Switching Costs," Economics Working Papers 8865, University of California at Berkeley.
  3. Farrell, Joseph & Gallini, Nancy T., 1987. "Second-sourcing as a Commitment: Monopoly Incentives to Attract Competition," Department of Economics, Working Paper Series qt4zr9b9dr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Farrell, Joseph & Shapiro, Carl, 1987. "Optimal Contracts with Lock-In," Department of Economics, Working Paper Series qt19f324hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  6. Russell Cooper & T.W. Ross, 1984. "Product Warranties and Double Moral Hazard," Cowles Foundation Discussion Papers 716, Cowles Foundation for Research in Economics, Yale University.
  7. Chen, Zhiqi & Ross, Thomas W., 1994. "Why are extended warranties so expensive?," Economics Letters, Elsevier, vol. 45(2), pages 253-257, June.
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