Competition, Monopoly, and Aftermarkets
Posted: 22 Feb 2010
Date Written: April 2010
Consider a durable goods producer that has the option of monopolizing an aftermarket such as repair for its own product. An important question is whether such monopolization reduces welfare? We show that the answer to this question is frequently no. In particular, we explore three models that illustrate various ways in which aftermarket monopolization can reduce inefficiencies and thus increase social welfare and frequently also consumer welfare. Our article shows that efficiency enhancing aftermarket monopolization may be much more common than previous literature suggests.
JEL Classification: K21, L12, L49
Suggested Citation: Suggested Citation