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

Sherzod Akhundjanov

Washington State University - School of Economic Sciences

Ben Smith

University of Nebraska at Omaha - Department of Economics

Max St. Brown

Oregon Public Utility Commission

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

Akhundjanov, Sherzod and Smith, Ben and St. Brown, Max, A Path To Consumer Surplus & Loyalty: How Path Dependent Products Result in Lower Prices and Order-Dependent Consumer Loyalty (February 5, 2018). Available at SSRN: https://ssrn.com/abstract=2717505 or http://dx.doi.org/10.2139/ssrn.2717505

Sherzod Akhundjanov

Washington State University - School of Economic Sciences ( email )

P.O. Box 646210
Hulbert Hall 101
Pullman, WA 99164-6210
United States

Ben Smith (Contact Author)

University of Nebraska at Omaha - Department of Economics ( email )

College of Business Administration
60th and Dodge Streets
Omaha, NE 68182
United States

HOME PAGE: http://bensresearch.com

Max St. Brown

Oregon Public Utility Commission ( email )

201 High St SE #100,
Salem, OR 97301
United States

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