Accidents, Liability Obligations and Monopolized Markets for Spare Parts: Profits and Social Welfare

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Accidents, Liability Obligations and Monopolized Markets for Spare Parts: Profits and Social Welfare

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Pio Baake

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Pio Baake

Abstract

We analyze the effects of accidents and liability obligations on the incentives of car manufacturers to monopolize the markets for their spare parts. We show that monopolized markets for spare parts lead to higher overall expenditures for consumers. Furthermore, while the manufacturers invest more in order to offer cars with higher qualities, monopolization tends to reduce social welfare. Key for these results is the observation that high prices for spare parts entail a negative external effect inasmuch as liability obligations imply that consumers of competing products have to pay the high prices as well.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 782.

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Length: 22 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwwpp:dp782

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-04-29 (All new papers)
NEP-COM-2008-04-29 (Industrial Competition)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Dennis W. Carlton & Michael Waldman, 2001. "Competition, Monopoly, and Aftermarkets," NBER Working Papers 8086, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Eric R. Emch, 2003. "Price Discrimination via Proprietary Aftermarkets," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
Zhiqi Chen & Tom Ross, 1993. "Refusals to deal, Price Discrimination and Independent Service Organizations," Carleton Industrial Organization Research Unit (CIORU) 93-01, Carleton University, Department of Economics.
Other versions:
- Chen, Zhiqi & Ross, Thomas W, 1993. "Refusals to Deal, Price Discrimination, and Independent Service Organizations," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 2(4), pages 593-614, Winter.

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