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Maintenance Commitments for Monopolized Goods

  • Pu-yan Nie

This paper highlights the monopoly firms´ commitments for goods requiring high maintenance expenditure, such as elevators, televisions and computers. A guarantee time limit model to maintain these special goods is presented in this paper. Based on this model, several types of commitments with different guarantee time limits are compared under monopoly conditions. This paper finds that the guarantee pattern has no effect on the monopoly firm´s profits if all information is known to both the consumer and the monopolist. It is also shown that if a monopoly firm exaggerates its product quality claims in its advertisements, then it cannot meet its warranty guarantees. Industrial organizational theory is employed to analyze maintenance guarantees in this work.

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Article provided by University of Economics, Prague in its journal Prague Economic Papers.

Volume (Year): 2012 (2012)
Issue (Month): 1 ()
Pages: 18-29

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Handle: RePEc:prg:jnlpep:v:2012:y:2012:i:1:id:408:p:18-29
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  1. Corts, Kenneth S., 1997. "On the competitive effects of price-matching policies," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 283-299, May.
  2. Krueger, Dirk & Uhlig, Harald, 2006. "Competitive risk sharing contracts with one-sided commitment," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1661-1691, October.
  3. Krueger, Dirk & Lustig, Hanno & Perri, Fabrizio, 2006. "Evaluation asset pricing models with limited commitment using household consumption data," CFS Working Paper Series 2006/22, Center for Financial Studies (CFS).
  4. Arzu Akkoyunlu-Wigley & Sevinc Mihci, 2006. "Effects of the customs union with the European Union on the market structure and pricing behaviour of the Turkish manufacturing industry," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2443-2452.
  5. Jean-Luc Gaffard & Michel Quéré, 2006. "What’s the aim for competition policy: optimizing market structure or encouraging innovative behaviors?," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 175-187, April.
  6. Nie, Pu-yan, 2009. "Commitment for storable goods under vertical integration," Economic Modelling, Elsevier, vol. 26(2), pages 414-417, March.
  7. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  8. Atsuo Utaka, 2006. "Durable-Goods Warranties and Social Welfare," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(2), pages 508-522, October.
  9. Zhiqi Chen, 1995. "How Low Is a Guaranteed-Lowest-Price?," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 683-701, August.
  10. Lambson, Val E. & Phillips, Kerk L., 2007. "Market structure and Schumpeterian growth," Journal of Economic Behavior & Organization, Elsevier, vol. 62(1), pages 47-62, January.
  11. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  12. Igal Hendel & Paolo Dudine & Alessandro Lizzeri, 2006. "Storable Good Monopoly: The Role of Commitment," American Economic Review, American Economic Association, vol. 96(5), pages 1706-1719, December.
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