Miao, Chun-Hui (2005): Consumer myopia, compatibility and aftermarket monopolization.
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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.
|Item Type:||MPRA Paper|
|Original Title:||Consumer myopia, compatibility and aftermarket monopolization|
|Keywords:||aftermarket, Bertrand competition, bounded rationality, standardization.|
|Subjects:||L - Industrial Organization > L0 - General|
|Depositing User:||Chun-Hui Miao|
|Date Deposited:||01. Feb 2010 00:28|
|Last Modified:||12. Feb 2013 11:54|
Carlton, Dennis W. and Michael Waldman, "Competition, Monopoly, and Aftermarkets," 2006. National Bureau of Economic Research, Inc, NBER Working Papers: 8086.