IDEAS home Printed from https://ideas.repec.org/p/cre/crefwp/147.html
   My bibliography  Save this paper

On the Pricing of Replacement Parts

Author

Abstract

This paper presents a model in which a good is made up of two parts, and each part asts one or two periods, with known probabilities. The analysis includes consumer decisions regarding part replacement, as well as profit maximization under monopoly and oligipoly. It is found that firms have incentives to supply all part for replacement, rather than force the consumer to replace the entire good when a single part is needed. In oligopoly, the non-collusive equilibrium when parts are not compatible acress brands involves pricing entire goods below marginal cost and individual parts above marginal cost. The paper also puts forward a testable hypothesis about the auto parts market, namely that the emergence of generic auto parts in the 1980s and 1990s may have not only driven down the prices of parts with which they competed, but also driven up the prices of other parts.

Suggested Citation

  • Max Blouin, 2002. "On the Pricing of Replacement Parts," Cahiers de recherche CREFE / CREFE Working Papers 147, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:147
    as

    Download full text from publisher

    File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah147.pdf
    File Function: Main text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Rommert Dekker & Ralph Wildeman & Frank Duyn Schouten, 1997. "A review of multi-component maintenance models with economic dependence," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 45(3), pages 411-435, October.
    2. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-123, March.
    3. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-1181, December.
    4. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
    5. Cho, Danny I. & Parlar, Mahmut, 1991. "A survey of maintenance models for multi-unit systems," European Journal of Operational Research, Elsevier, vol. 51(1), pages 1-23, March.
    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. Hattori Keisuke & Lin Ming-Hsin, 2011. "Alliance Partner Choice in Markets with Vertical and Horizontal Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-27, June.
    2. Andrea Mantovani, 2013. "The Strategic Effect of Bundling: A New Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 25-43, February.
    3. Knittel Christopher R. & Stango Victor, 2008. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, January.
    4. Nicholas S. Economides & Glenn A. Woroch, 1992. "Benefits and Pitfalls of Network Interconnection," Working Papers 92-31, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Nicholas Economides & Evangelos Katsamakas, 2006. "Two-Sided Competition of Proprietary vs. Open Source Technology Platforms and the Implications for the Software Industry," Management Science, INFORMS, vol. 52(7), pages 1057-1071, July.
    6. Maruyama, Masayoshi & Minamikawa, Kazumitsu, 2009. "Vertical integration, bundled discounts and welfare," Information Economics and Policy, Elsevier, vol. 21(1), pages 62-71, February.
    7. Halmenschlager, Christine & Mantovani, Andrea, 2017. "On the private and social desirability of mixed bundling in complementary markets with cost savings," Information Economics and Policy, Elsevier, vol. 39(C), pages 45-59.
    8. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
    9. Ornella Tarola & Cecilia Vergari, 2015. "Asymmetric Complements in a Vertically Differentiated Market: Competition or Integration?," Manchester School, University of Manchester, vol. 83(1), pages 72-100, January.
    10. Knittel, Christopher R. & Stango, Victor, 2011. "Strategic incompatibility in ATM markets," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2627-2636, October.
    11. Maruyama, Masayoshi & Zennyo, Yusuke, 2017. "Process innovation, application compatibility, and welfare," Information Economics and Policy, Elsevier, vol. 40(C), pages 1-12.
    12. Vamosiu, Adriana, 2018. "Compatibility and bundling of stand and No stand-alone use complements," International Journal of Production Economics, Elsevier, vol. 201(C), pages 62-74.
    13. Andrea Mantovani & Francisco Ruiz-Aliseda, 2016. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Management Science, INFORMS, vol. 62(2), pages 534-549, February.
    14. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    15. Nicholas Economides & William Lehr, 1994. "The Quality of Complex Systems and Industry Structure," Working Papers 94-06, New York University, Leonard N. Stern School of Business, Department of Economics.
    16. Knittel, Christopher R. & Stango, Victor, 2011. "Strategic incompatibility in ATM markets," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2627-2636, October.
    17. María Fernanda Viecens, 2009. "Compatibility with Firm Dominance," Working Papers 2009-12, FEDEA.
    18. Foros, Øystein & Kind, Hans Jarle & Sand, Jan Yngve, 2009. "Entry may increase network providers' profit," Telecommunications Policy, Elsevier, vol. 33(9), pages 486-494, October.
    19. de Palma, Andre & Leruth, Luc, 1996. "Variable willingness to pay for network externalities with strategic standardization decisions," European Journal of Political Economy, Elsevier, vol. 12(2), pages 235-251, September.
    20. Guillem Roig, 2017. "Product Compatibility as an Strategy to Hinder Entry Deterrence," Documentos de Trabajo 015773, Universidad del Rosario.

    More about this item

    Keywords

    replacement parts; capital replacement; aftermarkets; compatibility; antitrust.;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

    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:cre:crefwp:147. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stéphane Pallage). General contact details of provider: http://edirc.repec.org/data/crefeca.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.