Aftermarket Power and Basic Market Competition
I revisit the relation between aftermarket power and basic market competition. I consider an infinite period model with overlapping consumers: in each period, one consumer is born and joins one of the existing installed bases, then aftermarket payoffs are received by sellers and consumers, then finally one consumer dies. I derive the unique symmetric Markov equilibrium of this game and the resulting stationary distribution over states (each firm's installed base). I show that an increase in aftermarket power increases the extent of increasing dominance (i.e., a large firm is increasingly more likely to capture a new consumer than a small firm). This in turn leads to several implications of aftermarket power. First, the stationary distribution places greater weight on asymmetric states. Second, social welfare is greater. Third, under some conditions consumer welfare is also greater. Fourth, the value of a firm with zero installed base is lower, and so barriers to entry are higher.
(This abstract was borrowed from another version of this item.)
|Date of creation:||2008|
|Contact details of provider:|| Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126|
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Web page: http://w4.stern.nyu.edu/economics/
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- Michael Waldman, 2010.
"Competition, Monopoly, and Aftermarkets,"
Journal of Law, Economics and Organization,
Oxford University Press, vol. 26(1), pages 54-91, April.
- Dennis W. Carlton & Michael Waldman, 2001. "Competition, Monopoly, and Aftermarkets," NBER Working Papers 8086, National Bureau of Economic Research, Inc.
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- Christopher Budd & Christopher Harris & John Vickers, 1993. "A Model of the Evolution of Duopoly: Does the Asymmetry between Firms Tend to Increase or Decrease?," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 543-573.
- Chen, Zhiqi & Ross, Thomas W, 1993. "Refusals to Deal, Price Discrimination, and Independent Service Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 593-614, Winter.
- Zhiqi Chen & Tom Ross, 1993. "Refusals to deal, Price Discrimination and Independent Service Organizations," Carleton Industrial Organization Research Unit (CIORU) 93-01, Carleton University, Department of Economics.
- Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
- 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. Full references (including those not matched with items on IDEAS)
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