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Consumer myopia, standardization and aftermarket monopolization

  • Miao, Chun-Hui

In this paper, I show that the standard Bertrand competition argument does not apply when firms compete for myopic consumers who optimize period-by-period. I develop the model in the context of aftermarket. With overlapping-generations of consumers, simultaneous product offerings in the primary market and aftermarket establishes a price floor for the primary good. This constraint prevents aftermarket rents from being dissipated by the primary market competition. Duopoly firms earn positive profits despite price competition with undifferentiated products. Nonetheless, government interventions to reinforce aftermarket competition such as a standardization requirement may lead to the partial collapse of the primary market.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 54 (2010)
Issue (Month): 7 (October)
Pages: 931-946

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Handle: RePEc:eee:eecrev:v:54:y:2010:i:7:p:931-946
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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