Analyzing Welfare in Related Markets: Durable Goods and Aftermarkets
نویسنده
چکیده
The "aftermarkets" literature focuses on two important questions: (1) do durable goods manufacturers that control their aftermarkets have an incentive to charge service prices that exceed costs?; (2) how significant (in a welfare sense) is this distortion? Unlike previous work, this paper addresses the latter question by explicitly modeling firm behavior under various market structure conditions. The most interesting result from this analysis is that conditions of upstream competition and aftermarket control result in lower welfare than system monopoly. In the former case relative price distortions raise equipment lifecycle costs. A system monopolist, on the other hand, sets prices so that users of equipment minimize these costs.
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