Competition, Monopoly Maintenance, and Consumer Switching Costs
American Economic Journal: Microeconomics
vol. 2,
no. 1, February 2010
(pp. 230-55)
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)Citation
Morita, Hodaka, and Michael Waldman. 2010. "Competition, Monopoly Maintenance, and Consumer Switching Costs." American Economic Journal: Microeconomics, 2 (1): 230-55. DOI: 10.1257/mic.2.1.230Additional Materials
JEL Classification
- D42 Market Structure and Pricing: Monopoly
- D43 Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
- D82 Asymmetric and Private Information
- K21 Antitrust Law
- L12 Monopoly; Monopolization Strategies
- L42 Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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