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Competition, Monopoly Maintenance, and Consumer Switching Costs

Competition, Monopoly Maintenance, and Consumer Switching Costs Abstract 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 investigates an explanation for the practice based on consumer switching costs and the decision concerning maintaining versus replacing used units. In our explanation, if the maintenance market is not monopolized, consumers sometimes maintain used units that are more efficiently replaced. In turn, monopolizing the maintenance market avoids this inefficiency. In contrast to most previous explanations for the practice, in our explanation, the practice increases both social and consumer welfare. (JEL D42 , D43 , D82 , K21 , L12 , L42 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Competition, Monopoly Maintenance, and Consumer Switching Costs

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Publisher
American Economic Association
Copyright
Copyright © 2010 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.2.1.230
Publisher site
See Article on Publisher Site

Abstract

Abstract 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 investigates an explanation for the practice based on consumer switching costs and the decision concerning maintaining versus replacing used units. In our explanation, if the maintenance market is not monopolized, consumers sometimes maintain used units that are more efficiently replaced. In turn, monopolizing the maintenance market avoids this inefficiency. In contrast to most previous explanations for the practice, in our explanation, the practice increases both social and consumer welfare. (JEL D42 , D43 , D82 , K21 , L12 , L42 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Feb 1, 2010

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