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Orders to Supply as Substitutes for Commitments to Aftermarkets

Author

Listed:
  • Zhiqi Chen
  • Thomas W. Ross

Abstract

A number of recent antitrust cases in Canada and other countries have involved durable goods manufacturers refusing to supply proprietary parts to independent service organizations. Earlier work suggested that the inability of manufacturers to commit to low aftermarket prices creates an inefficiency that might be removed by a judicial order to supply. This paper examines this view critically with a specific model of repairs and demonstrates that under plausible conditions there is no welfare loss due to the inability to commit. It goes on to show that an order to supply can create its own distortion and welfare loss if it encourages inefficient substitution of inputs in the production of repairs.

Suggested Citation

  • Zhiqi Chen & Thomas W. Ross, 1998. "Orders to Supply as Substitutes for Commitments to Aftermarkets," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1204-1224, November.
  • Handle: RePEc:cje:issued:v:31:y:1998:i:5:p:1204-1224
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    Citations

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    Cited by:

    1. Michael Waldman, 2010. "Competition, Monopoly, and Aftermarkets," Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(1), pages 54-91, April.
    2. Paul Isely & Matthew Roelofs, 2004. "Primary market and aftermarket competition in the bicycle component industry," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2097-2102.
    3. 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.
    4. Keisuke Hattori & Amihai Glazer, 2013. "How to Commit to a Future Price," Working Papers 131402, University of California-Irvine, Department of Economics.
    5. 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.
    6. Miller, David A., 2008. "Invention under uncertainty and the threat of ex post entry," European Economic Review, Elsevier, vol. 52(3), pages 387-412, April.
    7. Zhiqi Chen & Thomas Ross & W. Stanbury, 1998. "Refusals to Deal and Aftermarkets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(1), pages 131-151, April.
    8. 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.

    More about this item

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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