DURABLE‐GOODS MONOPOLY WITH MAINTENANCE

Gregory E. Goering

Bulletin of Economic Research, 2007, vol. 59, issue 3, 231-246

Abstract: A two‐period durable‐goods monopoly product model with a competitive maintenance market is examined. Three types of monopoly solutions are calculated and contrasted to the social optimum: rentals, committed sales and uncommitted sales. Among other things, it is shown that contrary to the conventional wisdom a seller with committed power does not wish to commit ‘to act like a renter’ when maintenance is performed by buyers. This is due to the different objective functions of the buyer and seller. Furthermore, unlike earlier works, it is shown that the socially optimal amount of maintenance/repair does not occur in any sales case.

Date: 2007
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