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Competition, Monopoly, and Aftermarkets

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  • Carlton, Dennis W.
  • Waldman, Michael

Abstract

Consider a durable goods producer that has the option of monopolizing an aftermarket such as repair for its own product. An important question is whether such monopolization reduces welfare? We show that the answer to this question is frequently no. In particular, we explore three models that illustrate various ways in which aftermarket monopolization can reduce inefficiencies and thus increase social welfare and frequently also consumer welfare. Our article shows that efficiency enhancing aftermarket monopolization may be much more common than previous literature suggests. (JEL K21, L12, L49) The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.
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  • Carlton, Dennis W. & Waldman, Michael, 2000. "Competition, Monopoly, and Aftermarkets," Working Papers 164, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    • Handle: RePEc:zbw:cbscwp:164
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    References listed on IDEAS

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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. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    3. Cabral, Luís, 2014. "Aftermarket power and foremarket competition," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 60-69.
    4. Ben O. Smith, 2013. "Piracy, Awareness and Welfare in a Required Aftermarket," 2013 Papers psm164, Job Market Papers.
    5. Hodaka Morita & Michael Waldman, 2010. "Competition, Monopoly Maintenance, and Consumer Switching Costs," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 230-255, February.
    6. Laure Durand-Viel & Bertrand Villeneuve, 2016. "Strategic Capacity Investment under Hold-up Threats: The Role of Contract Length and Width," Manchester School, University of Manchester, vol. 84(3), pages 313-339, June.
    7. Joseph Farrell, 2017. "Some Simple Analytics of Vertically Linked Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(4), pages 431-440, June.
    8. Yongmin Chen, 2014. "Refusal to Deal, Intellectual Property Rights, and Antitrust," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(3), pages 533-557.
    9. Angela Köppl & Simon Loretz & Ina Meyer & Margit Schratzenstaller, 2020. "Kreislaufwirtschaft und Förderung des Reparatursektors," WIFO Monatsberichte (monthly reports), WIFO, vol. 93(2), pages 123-135, February.
    10. Gans, Joshua S., 2012. "Mobile application pricing," Information Economics and Policy, Elsevier, vol. 24(1), pages 52-59.
    11. Marco Savioli & Lorenzo Zirulia, 2020. "Does add-on presence always lead to lower baseline prices? Theory and evidence," Journal of Economics, Springer, vol. 129(2), pages 143-172, March.
    12. Cabral, Luis, 2008. "Aftermarket Power and Basic Market Competition," CEPR Discussion Papers 6802, C.E.P.R. Discussion Papers.
    13. 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.
    14. N. N., 2020. "WIFO-Monatsberichte, Heft 2/2020," WIFO Monatsberichte (monthly reports), WIFO, vol. 93(2), February.
    15. 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.
    16. Sánchez-Cartas, J. Manuel, 2022. "Welfare and fairness in free-to-play video games," Technological Forecasting and Social Change, Elsevier, vol. 180(C).

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    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other

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