A Path To Consumer Surplus & Loyalty: How Path Dependent Products Result in Lower Prices and Order-Dependent Consumer Loyalty
22 Pages Posted: 18 Jan 2016 Last revised: 5 Feb 2018
Date Written: February 5, 2018
Abstract
In the technology and design industries, one product builds on another: a smart television enhances a smart phone. However, due to complimentary features, the utility gained by owning both products from the same firm is greater than the sum of the two products' utility if purchased from separate firms. Aftermarkets suggest the margins of the second product would increase. Instead, we show that the firms' complementary utility offset each other resulting in reduced prices. Further, consumer loyalty is a function of the product release order; given a different release schedule some consumers would be loyal to a different company.
Keywords: Hotelling, Aftermarkets, Bounded Rationality, Complementary Goods, Path Dependance
JEL Classification: L11, L13, D82, D43
Suggested Citation: Suggested Citation
