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Durable Goods, Monopoly Maintenance, and Time Inconsistency

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  • Hodaka Morita
  • Michael Waldman

Abstract

Durable‐goods producers frequently choose to monopolize the maintenance markets for their own products. This paper shows that, similar to leasing, one reason a firm may employ this practice is that it reduces or even eliminates problems due to time inconsistency. We first demonstrate this result in a setting closely related to Bulow's (1982) classic analysis of durable‐goods monopoly. We then show the result in a setting similar to those considered in Waldman (1996, 1997) and Hendel and Lizzeri (1999), in which new and used units are imperfect substitutes. The paper also discusses alternative explanations for the phenomenon.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:jemstr:v:13:y:2004:i:2:p:273-302
    DOI: 10.1111/j.1530-9134.2004.00011.x
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    References listed on IDEAS

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    11. Waldman, Michael, 1997. "Eliminating the Market for Secondhand Goods: An Alternative Explanation for Leasing," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 61-92, April.
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    Cited by:

    1. Miao, Chun-Hui, 2010. "Consumer myopia, standardization and aftermarket monopolization," European Economic Review, Elsevier, vol. 54(7), pages 931-946, October.
    2. Gerstle, Ari D. & Waldman, Michael, 2016. "Mergers in durable-goods industries: A re-examination of market power and welfare effects," Research in Economics, Elsevier, vol. 70(4), pages 677-692.
    3. Michael S. Pangburn & Euthemia Stavrulaki, 2022. "From Used to New: Committing to Product Refresh Services," Sustainability, MDPI, vol. 14(8), pages 1-21, April.
    4. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    5. Amagoia Sagasta & José M. Usategui, 2015. "Purchase and rental subsidies in durable-oligopolies," Hacienda Pública Española / Review of Public Economics, IEF, vol. 213(2), pages 11-40, June.
    6. Sagasta Amagoia & Usategui José M., 2018. "Timing of Emissions and Effects of Emission Taxes in Durable-Goods Oligopolies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(4), pages 1-21, October.
    7. Dennis W. Carlton & Michael Waldman, 2005. "Tying, Upgrades, and Switching Costs in Durable-Goods Markets," NBER Working Papers 11407, National Bureau of Economic Research, Inc.
    8. Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.
    9. Gregory E. Goering, 2007. "Durable‐Goods Monopoly With Maintenance," Bulletin of Economic Research, Wiley Blackwell, vol. 59(3), pages 231-246, July.
    10. 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.
    11. Laure Durand-Viel & Bertrand Villeneuve, 2016. "Strategic Capacity Investment under Hold-up Threats: The Role of Contract Length and Width," Manchester School, University of Manchester, vol. 84(3), pages 313-339, June.
    12. Calvano, Emilio, 2006. "Destructive Creation," SSE/EFI Working Paper Series in Economics and Finance 653, Stockholm School of Economics, revised 30 Dec 2007.
    13. Kim, Jae-Cheol & Kim, Min-Young & Chun, Se-Hak, 2014. "Property tax and its effects on strategic behavior of leasing and selling for a durable-goods monopolist," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 132-144.
    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. Keisuke Hattori & Amihai Glazer, 2013. "How to Commit to a Future Price," Working Papers 131402, University of California-Irvine, Department of Economics.
    16. Kinokuni, Hiroshi & Ohkawa, Takao & Okamura, Makoto, 2010. ""Planned antiobsolescence" occurs when consumers engage in maintenance," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 441-450, September.
    17. 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.
    18. Esteban, Susanna & Llobet, Gerard, 2005. "Market structure, scrappage, and moral hazard," Economics Letters, Elsevier, vol. 88(2), pages 203-208, August.
    19. Kirkizoğlu, Zeynep & Karaer, Özgen, 2022. "After-sales service and warranty decisions of a durable goods manufacturer," Omega, Elsevier, vol. 113(C).

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