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Competition, Monopoly, and Aftermarkets

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  • Dennis W. Carlton
  • Michael Waldman

Abstract

Consider a durable goods producer that potentially has market power in the aftermarkets associated with its products. An important question is to what extent, if any, should the antitrust laws restrict the firm's behavior in these aftermarkets? In this paper we explore a number of models characterized by either competition or monopoly in the new-unit market, and show that a variety of behaviors that hurt competition in aftermarkets can, in fact, be efficient responses to potential inefficiencies that can arise in aftermarkets. Our results should give courts pause before intervening in aftermarkets.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8086.

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Date of creation: Jan 2001
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Handle: RePEc:nbr:nberwo:8086

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References

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  1. Joseph Farrell and Carl Shapiro., 1988. "Dynamic Competition with Switching Costs," Economics Working Papers 8865, University of California at Berkeley.
  2. Schmalensee, Richard, 1974. "Market Structure, Durability, and Maintenance Effort," Review of Economic Studies, Wiley Blackwell, vol. 41(2), pages 277-87, April.
  3. Mallela, Parthasaradhi & Nahata, Babu, 1980. "Theory of Vertical Control with Variable Proportions," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 1009-25, October.
  4. Hodaka Morita & Michael Waldman, 2010. "Competition, Monopoly Maintenance, and Consumer Switching Costs," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 230-55, February.
  5. Zhiqi Chen & Tom Ross, 1996. "Orders to Supply as Substitutes for Commitments to Aftermarkets," Carleton Industrial Organization Research Unit (CIORU) 96-02, Carleton University, Department of Economics.
  6. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
  7. Waldman, Michael, 1996. "Durable Goods Pricing When Quality Matters," The Journal of Business, University of Chicago Press, vol. 69(4), pages 489-510, October.
  8. 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.
  9. Zhiqi Chen & Thomas Ross & W. Stanbury, 1998. "Refusals to Deal and Aftermarkets," Review of Industrial Organization, Springer, vol. 13(1), pages 131-151, April.
  10. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  11. Klemperer, Paul, 1989. "Price Wars Caused by Switching Costs," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 405-20, July.
  12. Chen, Zhiqi & Ross, Thomas W, 1993. "Refusals to Deal, Price Discrimination, and Independent Service Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 593-614, Winter.
  13. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  14. Rust, John, 1986. "When Is It Optimal to Kill Off the Market for Used Durable Goods?," Econometrica, Econometric Society, vol. 54(1), pages 65-86, January.
  15. Waldman, Michael, 1997. "Eliminating the Market for Secondhand Goods: An Alternative Explanation for Leasing," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 61-92, April.
  16. Su, Teddy T, 1975. "Durability of Consumption Goods Reconsidered," American Economic Review, American Economic Association, vol. 65(1), pages 148-57, March.
  17. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
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Citations

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Cited by:
  1. Bernard, Sophie, 2011. "Remanufacturing," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 337-351.
  2. Hodaka Morita & Michael Waldman, 2010. "Competition, Monopoly Maintenance, and Consumer Switching Costs," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 230-55, February.
  3. Gans, Joshua S., 2012. "Mobile application pricing," Information Economics and Policy, Elsevier, vol. 24(1), pages 52-59.
  4. Cabral, Luís M B, 2008. "Aftermarket Power and Basic Market Competition," CEPR Discussion Papers 6802, C.E.P.R. Discussion Papers.
  5. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
  6. Giovanni Goldoni, 2007. "La gestione dei rifiuti da apparecchiature elettriche ed elettroniche dopo la direttiva 2002/96/CE," Working Papers 43, University of Verona, Department of Economics.
  7. Ben O. Smith, 2013. "Piracy, Awareness and Welfare in a Required Aftermarket," 2013 Papers psm164, Job Market Papers.
  8. Pio Baake, 2008. "Accidents, Liability Obligations and Monopolized Markets for Spare Parts: Profits and Social Welfare," Discussion Papers of DIW Berlin 782, DIW Berlin, German Institute for Economic Research.
  9. Shastitko, A., 2012. "Competition on Aftermarkets: the Subject Matter and Policy Applications," Journal of the New Economic Association, New Economic Association, vol. 16(4), pages 104-126.
  10. Chen, Yongmin, 2011. "Refusal to Deal, Intellectual Property Rights, and Antitrust," MPRA Paper 31974, University Library of Munich, Germany.
  11. Durand-Viel, Laure & Villeneuve, Bertrand, 2009. "Strategic Capacity Investment under Holdup Threats: The Role of Contract Length and Width," MPRA Paper 19015, University Library of Munich, Germany.

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