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American Economic Journal: Microeconomics: Vol. 2 No. 1 (February 2010)

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Competition, Monopoly Maintenance, and Consumer Switching Costs

Article 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.2.1.230

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)

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Authors

Morita, Hodaka (U New South Wales)
Waldman, Michael (Cornell U)

JEL Classifications

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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