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)
"Competition, Monopoly Maintenance, and Consumer Switching Costs."
American Economic Journal: Microeconomics,
Market Structure and Pricing: Monopoly
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
Asymmetric and Private Information
Monopoly; Monopolization Strategies
Vertical Restraints; Resale Price Maintenance; Quantity Discounts