Morita, Hodaka and Waldman, Michael (2006): Competition, Monopoly Maintenance, and Consumer Switching Costs.
Download (322kB) | Preview
Significant attention has been paid to why a durable-goods producer with little or no market power would monopolize the maintenance market for its own product. This paper provides an explanation for this practice that is based on consumer switching costs and the choice of consumers between maintaining and replacing used units. In our explanation, if a firm does not monopolize the maintenance market for its own product, then consumers sometimes maintain used units when it would be efficient for the units to be replaced. In turn, the return to monopolizing the maintenance market is that the practice allows the firm to avoid this inefficiency. An interesting aspect of our analysis that has significant public-policy implications is that, in contrast to most previous explanations for why a durable-goods producer with little or no market power would monopolize the maintenance market for its own product, in our explanation the practice increases rather than decreases both social welfare and consumer welfare.
|Item Type:||MPRA Paper|
|Institution:||Johnson Graduate School of Management, Cornell University|
|Original Title:||Competition, Monopoly Maintenance, and Consumer Switching Costs|
|Keywords:||durable goods; aftermarkets; switching costs|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies
L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices
|Depositing User:||Michael Waldman|
|Date Deposited:||11 Jan 2007|
|Last Modified:||29 Nov 2016 17:54|
Ausubel, L., and R. Deneckere, “Reputation in Bargaining and Durable Goods Monopoly,” Econometrica, 1989, 57, 511-531.
Borenstein, S., J. Mackie-Mason, and J. Netz, “Antitrust Policy in Aftermarkets,” Antitrust Law Journal, 1995, 63, 455-482.
Bulow, J., “Durable Goods Monopolists,” Journal of Political Economy, 1982, 90, 314-332.
Bulow, J., “An Economic Theory of Planned Obsolescence,” Quarterly Journal of Economics, 1986, 101, 729-749.
Butz, D., “Durable-Good Monopoly and Best-Price Provisions,” American Economic Review, 1990, 80, 1062-1076.
Carlton, D., and M. Waldman, “Competition, Monopoly, and Aftermarkets,” NBER Working Paper No. 8086, Revised March 2006.
Chen, Z., and T. Ross, “Refusals to Deal, Price Discrimination, and Independent Service Organizations,” Journal of Economics and Management Strategy, 1993, 2, 593-614.
Chen, Z., and T. Ross, “Orders to Supply as Substitutes for Commitments to Aftermarkets,” Canadian Journal of Economics, 1998, 31, 1204-1224.
Chen, Z., and T. Ross, “Refusals to Deal and Orders to Supply in Competitive Markets,” International Journal of Industrial Organization, 1999, 17, 399-417.
Chen, Z., T. Ross, and W. Stanbury, “Refusals to Deal and Aftermarkets,” Review of Industrial Organization, 1998, 13, 131-151.
Coase, R., “Durability and Monopoly,” Journal of Law and Economics, 1972, 15, 143-149.
Elzinga, K., and D. Mills, “Independent Service Organizations and Economic Efficiency,” Economic Inquiry, 2001, 39, 549-560.
Farrell, J., and C. Shapiro, “Dynamic Competition with Switching Costs,” Rand Journal of Economics, 1988, 19, 123-137.
Karp, L., and J. Perloff, “The Optimal Suppression of a Low-Cost Technology by a Durable-Good Monopoly,” Rand Journal of Economics, 1996, 27, 346-364.
Klein, B., “Market Power in Antitrust: Economic Analysis After Kodak,” Supreme Court Economic Review, 1993, 3, 43-92.
Klemperer, P., “Markets with Consumer Switching Costs,” Quarterly Journal of Economics, 1987, 102, 375-394.
Klemperer, P., “Price Wars Caused by Switching Costs,” Review of Economic Studies, 1989, 56, 405-420.
Klemperer, P., “Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade,” Review of Economic Studies, 1995, 62, 515-539.
Plaintiff’s Memorandum in Eastman Kodak Co. v. Image Technical Services, Inc., et al., 1992.
Rust, J., “When is it Optimal to Kill Off the Market for Used Durable Goods?,” Econometrica, 1986, 54, 65-86.
Salop, S., “The First Principles Approach to Antitrust, Kodak, and Antitrust at the Millennium,” Antitrust Law Journal, 2000, 68, 187-202.
Schmalensee, R., “Market Structure, Durability, and Maintenance Effort,” Review of Economic Studies, 1974, 41, 277-287.
Shapiro, C., “Aftermarkets and Consumer Welfare: Making Sense of Kodak,” Antitrust Law Journal, 1995, 63, 483-511.
Su, T., “Durability of Consumption Goods Reconsidered,” American Economic Review, 1975, 65, 148-157.
Tirole, J., The Theory of Industrial Organization, Cambridge, MA: MIT Press, 1988.
Waldman, M., “A New Perspective on Planned Obsolescence,” Quarterly Journal of Economics, 1993, 108, 273-283.
Waldman, M., “Durable Goods Theory for Real World Markets,” Journal of Economic Perspectives, 2003, 17, 131-154.