IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v9y2000i3p157-188.html
   My bibliography  Save this article

Exercising Market Power in Proprietary Aftermarkets

Author

Listed:
  • Severin Borenstein
  • Jeffrey K. Mackie‐Mason
  • Janet S. Netz

Abstract

Over 20 recent antitrust cases have turned on whether competition in complex durable‐equipment markets prevents manufacturers from exercising market power over proprietary aftermarket products and services. We show that the price in the aftermarket will exceed marginal cost despite competition in the equipment market. Absent perfectly contingent long‐term contracts, firms will balance the advantages of marginal‐cost pricing to future generations of consumers against the payoff from monopoly pricing for current, locked‐in equipment owners. The result holds for undifferentiated Bertrand competition, differentiated duopoly, and monopoly equipment markets. We also examine the effects of market growth and equipment durability.

Suggested Citation

  • Severin Borenstein & Jeffrey K. Mackie‐Mason & Janet S. Netz, 2000. "Exercising Market Power in Proprietary Aftermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 157-188, June.
    • Handle: RePEc:bla:jemstr:v:9:y:2000:i:3:p:157-188
    DOI: 10.1046/j.1365-2745.1998.00285.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1046/j.1365-2745.1998.00285.x
    Download Restriction: no
    File URL: https://libkey.io/10.1046/j.1365-2745.1998.00285.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Michael Kende, 1998. "Profitability under an Open versus a Closed System," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 307-326, June.
    2. 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.
    3. Zhiqi Chen & Thomas W. Ross, 1993. "Refusals to Deal, Price Discrimination, and Independent Service Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 593-614, December.
    4. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    5. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    6. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    7. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    2. Choi, Jay Pil, 2003. "Bundling new products with old to signal quality, with application to the sequencing of new products," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1179-1200, October.
    3. 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.
    4. Patrick DeGraba, 1996. "Why Lever into a Zero‐Profit Industry: Tying, Foreclosure, and Exclusion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 433-447, September.
    5. 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.
    6. Miao, Chun-Hui, 2022. "The pricing of ancillary goods when selling on a platform," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    7. Pekka Sääskilahti, 2016. "Buying Decision Coordination and Monopoly Pricing of Network Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 313-333, April.
    8. Nalin Kulatilaka & Lihui Lin, 2006. "Impact of Licensing on Investment and Financing of Technology Development," Management Science, INFORMS, vol. 52(12), pages 1824-1837, December.
    9. 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.
    10. 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.
    11. Bar-Isaac, Heski, 2005. "Imperfect competition and reputational commitment," Economics Letters, Elsevier, vol. 89(2), pages 167-173, November.
    12. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    13. Michael Kende, 1998. "Profitability under an Open versus a Closed System," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 307-326, June.
    14. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    15. Severin Borenstein & Jeff MacKie-Mason & Janet Netz, 1994. "Tying and Market Power," Industrial Organization 9401001, University Library of Munich, Germany.
    16. D. Lee Heavner, 2004. "Vertical Enclosure: Vertical Integration and the Reluctance to Purchase from a Competitor," Journal of Industrial Economics, Wiley Blackwell, vol. 52(2), pages 179-199, June.
    17. Dainis Zēgners & Tobias Kretschmer, 2017. "Competition with Aftermarket Power When Consumers Are Heterogeneous," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(1), pages 96-122, February.
    18. Karlsson, Martin, 2007. "Quality incentives for GPs in a regulated market," Journal of Health Economics, Elsevier, vol. 26(4), pages 699-720, July.
    19. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    20. Heski Bar-Isaac, 2004. "Imperfect Competition and Committment," Working Papers 04-09, New York University, Leonard N. Stern School of Business, Department of Economics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:9:y:2000:i:3:p:157-188. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.