Efficient Durable Good Pricing and Aftermarket Tie-In Sales

Abstract

The conditions under which a durable good supplier employs a tying arrangement that binds aftermarket purchases to the original sale was a central issue in the Kodak case. Two competing theories were presented in that case. Importantly, neither of these provides an efficiency-based explanation for the observed behavior. Subsequent theories provide several efficiency-driven motivations for aftermarket tying. None of these, however, rely upon efficient contracting between the buyer and the seller of the durable good. This article demonstrates the conditions under which such a contract will contain an aftermarket tie-in provision.