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PRICING OF COMPLEMENTARY GOODS AS AN IMPLICIT FINANCIAL ARRANGEMENT

Jinhyuk Lee and Jaeok Park

Hitotsubashi Journal of Economics, 2014, vol. 55, issue 2, 207-228

Abstract: This paper studies the common pricing practice of firms selling a durable good at a low price and a complementary consumable good at a high price. In our model, consumers discount future payments while firms receive a steady-state flow of revenues from selling the durable and consumable goods. As a result, there are potential gains from deferring consumers' payments to the future. We show that when firms commit to constant prices and consumer lock-in is possible, firms choose pricing consistent with the practice in monopoly and competition. Our result provides a new efficiency argument in the aftermarket literature.

Keywords: aftermarkets; complementary goods; consumer lock-in; durable goods; implicit; financial arrangements (search for similar items in EconPapers)
JEL-codes: L10 L15 D40 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:55:y:2014:i:2:p:207-228

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