Market Power in Aftermarkets

Managerial & Decision Economics, Vol. 17, pp. 143-164, 1996

23 Pages Posted: 10 Jul 2011 Last revised: 26 Sep 2014

See all articles by Benjamin Klein

Benjamin Klein

University of California, Los Angeles (UCLA) - Department of Economics; Compass Lexecon

Date Written: March/April 1996

Abstract

Many recent antitrust cases involve aftermarkets the provision of spare parts or service for use with a previously purchased durable good. These cases rely on the Supreme Court's decision in Eastman Kodak Co. v. Image Technical Services, Inc. to argue that imperfectly informed consumers may find themselves 'locked in' to a particular brand of equipment after they make their initial equipment purchase. As a result, even if intensive competition exists when consumers make their equipment purchase, a manufacturer may possess significant market power, if not a monopoly, in the aftermarket and may use this power to increase aftermarket prices.

This paper explains why aftermarket prices often are high and examines the implications of such high aftermarket prices for antitrust. Contrary to the 'lock-in' analysis of the Supreme Court's decision, the many instances of systematically high aftermarket prices we observe in the marketplace are unlikely due to manufacturers taking advantage of imperfectly informed consumers to charge supracompetitive package prices. We show that even if consumers are totally uninformed about aftermarket conditions when they purchase their equipment, they pay a competitive package price because competition forces manufacturers to offset later aftermarket price increases with initial equipment price decreases.

JEL Classification: L41, K21

Suggested Citation

Klein, Benjamin, Market Power in Aftermarkets (March/April 1996). Managerial & Decision Economics, Vol. 17, pp. 143-164, 1996. Available at SSRN: https://ssrn.com/abstract=1872214

Benjamin Klein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-4628
United States
310-728-2025 (Phone)
310-728-2070 (Fax)

HOME PAGE: http://www.econ.ucla.edu/people/Faculty/Klein.html

Compass Lexecon ( email )

1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-4628
United States
310-728-2025 (Phone)
310-728-2070 (Fax)

HOME PAGE: http://www.compasslexecon.com/professionals/bio?id=152

Register to save articles to
your library

Register

Paper statistics

Downloads
135
Abstract Views
723
rank
213,110
PlumX Metrics