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Refusals to Deal, Price Discrimination, and Independent Service Organizations

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  • Zhiqi Chen
  • Thomas W. Ross

Abstract

A number of recent Canadian and U.S. antitrust cases have involved allegations that manufacturers of durable products have refused to supply parts to independent service organizations, apparently to monopolize the market for repairs of their products. This paper provides a theory of these strategies and considers the welfare implications of judicial orders to supply. The refusals here are seen as necessary to protect manufacturers' program of price discrimination: Expensive repairs represent a way to select high‐intensity, high‐value users and charge them more. In addition to the usual ambiguity associated with the welfare effects of prohibitions of price discrimination, forcing competition in repairs can have the further damaging effect of reducing social welfare by inducing manufacturers to lower product quality.

Suggested Citation

  • Zhiqi Chen & Thomas W. Ross, 1993. "Refusals to Deal, Price Discrimination, and Independent Service Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 593-614, December.
    • Handle: RePEc:bla:jemstr:v:2:y:1993:i:4:p:593-614
    DOI: 10.1111/j.1430-9134.1993.00593.x
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    References listed on IDEAS

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    1. Ross, Thomas W, 1986. "The Costs of Regulating Price Differences," The Journal of Business, University of Chicago Press, vol. 59(1), pages 143-156, January.
    2. Schmalensee, Richard, 1973. "A Note on the Theory of Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 442-449, Part I, M.
    3. Russell Cooper & Thomas W. Ross, 1985. "Product Warranties and Double Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 103-113, Spring.
    4. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
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    Cited by:

    1. Michael Waldman, 2010. "Competition, Monopoly, and Aftermarkets," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(1), pages 54-91, April.
    2. Miao, Chun-Hui, 2022. "The pricing of ancillary goods when selling on a platform," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    3. Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.
    4. Hodaka Morita & Michael Waldman, 2004. "Durable Goods, Monopoly Maintenance, and Time Inconsistency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 273-302, June.
    5. Severin Borenstein & Jeffrey K. Mackie‐Mason & Janet S. Netz, 2000. "Exercising Market Power in Proprietary Aftermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 157-188, June.
    6. Chen, Zhiqi & Ross, Thomas W., 1999. "Refusals to deal and orders to supply in competitive markets," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 399-417, April.
    7. Pekka Sääskilahti, 2016. "Buying Decision Coordination and Monopoly Pricing of Network Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 313-333, April.
    8. Michael Kende, 1998. "Profitability under an Open versus a Closed System," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 307-326, June.
    9. Luis Cabral, 2008. "Aftermarket Power and Basic Market Competition," Working Papers 08-20, New York University, Leonard N. Stern School of Business, Department of Economics.
    10. Dainis Zēgners & Tobias Kretschmer, 2017. "Competition with Aftermarket Power When Consumers Are Heterogeneous," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(1), pages 96-122, February.
    11. Jota Ishikawa & Hodaka Morita & Hiroshi Mukunoki, 2016. "Trade liberalization and aftermarket services for imports," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(4), pages 719-764, October.
    12. Renato Gomes & Jean Tirole, 2018. "Missed Sales and the Pricing of Ancillary Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 2097-2169.
    13. Hodaka Morita & Michael Waldman, 2010. "Competition, Monopoly Maintenance, and Consumer Switching Costs," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 230-255, February.
    14. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    15. Lee, Jinhyuk & Park, Jaeok, 2014. "Pricing Of Complementary Goods As An Implicit Financial Arrangement," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 55(2), pages 207-228, December.
    16. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    17. Patrick DeGraba, 1996. "Why Lever into a Zero‐Profit Industry: Tying, Foreclosure, and Exclusion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 433-447, September.
    18. Baake, Pio, 2010. "Accidents, Liability Obligations and Monopolized Markets for Spare Parts," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 10(1), pages 1-24.
    19. Dennis W. Carlton & Michael Waldman, 2014. "Robert Bork's Contributions to Antitrust Perspectives on Tying Behavior," Journal of Law and Economics, University of Chicago Press, vol. 57(S3), pages 121-144.
    20. Keeler, James B., 2022. "On the Right to Repair Agricultural Equipment," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322398, Agricultural and Applied Economics Association.
    21. David L. Kaserman, 2007. "Efficient Durable Good Pricing And Aftermarket Tie‐In Sales," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 533-537, July.
    22. Cabral, Luís, 2014. "Aftermarket power and foremarket competition," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 60-69.

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