Consumer Myopia, Standardization and Aftermarket Monopolization

40 Pages Posted: 18 Apr 2006 Last revised: 13 Nov 2007

Date Written: April 2006

Abstract

I examine firms' aftermarket behavior in the presence of myopic consumers who optimize period-by-period. Paradoxically, a monopolist's profit decreases with the percentage of myopic consumers, whereas competitive firms earn supranormal profits from myopic consumers through the strategic use of incompatibility. Contrary to the traditional view, primary market competition does not dissipate aftermarket rents. However, government interventions to reinforce aftermarket competition such as a standardization requirement may lead to the partial collapse of the primary market. Implications to the behavior approach of IO study and the hypothesis of planned obsolescence are discussed.

JEL Classification: D10, L10, L41

Suggested Citation

Miao, Chun-Hui, Consumer Myopia, Standardization and Aftermarket Monopolization (April 2006). Available at SSRN: https://ssrn.com/abstract=896641 or http://dx.doi.org/10.2139/ssrn.896641

Chun-Hui Miao (Contact Author)

University of South Carolina ( email )

701 Main Street
Columbia, SC 29208
United States