Interfering with Secondary Markets

Posted: 24 Feb 1999

See all articles by Igal Hendel

Igal Hendel

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Alessandro Lizzeri

Princeton University - Department of Economics

Abstract

We present a model to address in a unified manner four ways in which a monopolist can interfere with secondary markets. In the model, consumers have heterogeneous valuations for quality so that used-good markets play an allocative role. Our results are the following: (1) In contracts to Swan's famous independence result, a monopolist does not provide socially optimal durability. (2) Allowing the monopolist to rent does not restore socially optimal durability and increases the monopolist's market power in the used market. However, forcing the monopolist to sell the goods may be a bad policy because it would lead to either lower output or lower durability. (3) The manufacturer benefits from a well functioning used-good market despite the fact that used goods provide competition for new goods. (4) The monopolist prefers to restrict consumers' abilities to maintain the good.

JEL Classification: L12

Suggested Citation

Hendel, Igal E. and Lizzeri, Alessandro, Interfering with Secondary Markets. RAND Journal of Economics, Vol. 30, No. 1, Available at SSRN: https://ssrn.com/abstract=138848

Igal E. Hendel

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alessandro Lizzeri (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
08544 (Fax)

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