The Compatibility of Durable Goods with Contingent Generic Consumables
July 31, 2012
Omega: International Journal of Management Science, Forthcoming
Many durable products provide value only when used together with contingent services or consumable components, e.g. light fixtures (bulbs), printers (ink), electronics (batteries). Consumers need only have access to the contingent consumable components to continue to derive service from a durable. In fact, many firms rely primarily upon the revenues generated from the contingent services or consumables as the primary source of profitability, e.g., giving away the razors to make money on the blades. Such firms often invest considerable effort into making sure that consumers of their durables are held captive to their own branded consumables by impeding their access to generically available consumables. They do so by designing their products in such a way that they are not readily compatible with generic consumables. We consider the implications of competition from third-party manufacturers that can provide generic consumables and the manufacturer's production decisions of a durable good under such contingencies. This allows us to draw managerial insights about how a firm should decide on his product compatibility and production quantity when the generic contingent consumables enter the market.
Number of Pages in PDF File: 35
Keywords: Durable Goods, Contingent Consumables, Compatibility, Strategic Consumers, Remanufacturing
JEL Classification: L11, D40
Date posted: August 1, 2012