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Consumer myopia, standardization and aftermarket monopolization

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  • Miao, Chun-Hui

Abstract

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.

Suggested Citation

  • Miao, Chun-Hui, 2010. "Consumer myopia, standardization and aftermarket monopolization," European Economic Review, Elsevier, vol. 54(7), pages 931-946, October.
  • Handle: RePEc:eee:eecrev:v:54:y:2010:i:7:p:931-946
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hossain, Tanjim & Morgan, John, 2006. "Shrouded Attributes and Information Suppression: Evidence from Field Experiments," Competition Policy Center, Working Paper Series qt9d72t101, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    2. repec:eee:indorg:v:54:y:2017:i:c:p:239-268 is not listed on IDEAS
    3. Bubb, Ryan & Kaufman, Alex, 2013. "Consumer biases and mutual ownership," Journal of Public Economics, Elsevier, vol. 105(C), pages 39-57.
    4. Sumit Agarwal & John C Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," Levine's Working Paper Archive 122247000000002028, David K. Levine.
    5. repec:oup:revfin:v:21:y:2017:i:3:p:1189-1216. is not listed on IDEAS
    6. Michael D. Grubb, 2015. "Consumer Inattention and Bill-Shock Regulation," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 219-257.
    7. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
    8. Michael Kosfeld & Ulrich Schüwer, 2017. "Add-on Pricing in Retail Financial Markets and the Fallacies of Consumer Education," Review of Finance, European Finance Association, vol. 21(3), pages 1189-1216.

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