Aftermarkets : the monopoly case

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Aftermarkets : the monopoly case

Author Info

Bijl, P. de (Tilburg University, Center for Economic Research)

Additional information is available for the following registered author(s):

Paul W.J. de Bijl

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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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 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: Repair

Find related papers by JEL classification:
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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Farrell, Joseph & Shapiro, Carl, 1989. "Optimal Contracts with Lock-In," American Economic Review, American Economic Association, vol. 79(1), pages 51-68, March. [Downloadable!] (restricted)
Other versions:
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- Farrell, J. & Shapiro, C., 1988. "Optimal Contracts With Lock-In," Papers e-88-45, Stanford - Hoover Institution.
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Other versions:
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Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring. [Downloadable!] (restricted)
Other versions:
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Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
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Other versions:
- Klemperer, P., 1992. "Competition when Consumers Have Switching Costs: An Overview," Economics Series Working Papers 99142, University of Oxford, Department of Economics.
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Farrell, Joseph & Gallini, Nancy T, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 673-94, November. [Downloadable!] (restricted)
Other versions:
- Joseph Farrell and Nancy T. Gallini., 1986. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8618, University of California at Berkeley.
- Joseph Farrell and Nancy T. Gallini., 1987. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8760, University of California at Berkeley.

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