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Refusals to Deal, Price Discrimination, and Independent Service Organizations

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  • Chen, Zhiqi
  • Ross, Thomas W

Abstract

A number of recent Canadian and U.S. antitrust cases have involved allegations that manufacturers of durable products have refused to supply parts to independent service organization, apparently to monopolize the market for repairs of their products. This paper provides a theory of these strategies and considers the welfare implications of judicial orders to supply. The refusals here are seen as necessary to protect manufacturers' programs of price discrimination: Expensive repairs represent a way to select high-intensity, high-value users and charge them more. In addition to the usual ambiguity associated with the welfare effects of prohibitions of price discrimination, forcing competition in repairs can have the further damaging effect of reducing social welfare by inducing manufacturers to lower product quality. Copyright 1993 by MIT Press.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jemstr:v:2:y:1993:i:4:p:593-614
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    Cited by:

    1. Luis Cabral, 2008. "Aftermarket Power and Basic Market Competition," Working Papers 08-20, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
    3. Dennis W. Carlton & Michael Waldman, 2014. "Robert Bork's Contributions to Antitrust Perspectives on Tying Behavior," Journal of Law and Economics, University of Chicago Press, vol. 57(S3), pages 121-144.
    4. Chen, Zhiqi & Ross, Thomas W., 1999. "Refusals to deal and orders to supply in competitive markets," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 399-417, April.
    5. Lee, Jinhyuk & Park, Jaeok, 2014. "Pricing Of Complementary Goods As An Implicit Financial Arrangement," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 55(2), pages 207-228, December.
    6. Baake Pio, 2010. "Accidents, Liability Obligations and Monopolized Markets for Spare Parts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-26, May.
    7. Cabral, Luís, 2014. "Aftermarket power and foremarket competition," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 60-69.
    8. Michael Waldman, 2010. "Competition, Monopoly, and Aftermarkets," Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(1), pages 54-91, April.
    9. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    10. Jota Ishikawa & Hodaka Morita & Hiroshi Mukunoki, 2016. "Trade liberalization and aftermarket services for imports," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(4), pages 719-764, October.
    11. Baake, Pio, 2010. "Accidents, Liability Obligations and Monopolized Markets for Spare Parts," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 1-24.
    12. Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.
    13. 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.
    14. David L. Kaserman, 2007. "Efficient Durable Good Pricing And Aftermarket Tie-In Sales," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 533-537, July.

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