Competition, Monopoly Maintenance, and Consumer Switching Costs

Hodaka Morita () and Michael Waldman ()

MPRA Paper from University Library of Munich, Germany

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 provides an explanation for this practice that is based on consumer switching costs and the choice of consumers between maintaining and replacing used units. In our explanation, if a firm does not monopolize the maintenance market for its own product, then consumers sometimes maintain used units when it would be efficient for the units to be replaced. In turn, the return to monopolizing the maintenance market is that the practice allows the firm to avoid this inefficiency. An interesting aspect of our analysis that has significant public-policy implications is that, in contrast to most previous explanations for why a durable-goods producer with little or no market power would monopolize the maintenance market for its own product, in our explanation the practice increases rather than decreases both social welfare and consumer welfare.

Keywords: durable goods; aftermarkets; switching costs (search for similar items in EconPapers)
JEL-codes: L12 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ind
Date: 2006-11
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:1426

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