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Pricing Of Complementary Goods As An Implicit Financial Arrangement

Author

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  • LEE, JINHYUK
  • PARK, JAEOK

Abstract

This paper studies the common pricing practice of firms selling a durable good at a low price and a complementary consumable good at a high price. In our model, consumers discount future payments while firms receive a steady-state flow of revenues from selling the durable and consumable goods. As a result, there are potential gains from deferring consumers' payments to the future. We show that when firms commit to constant prices and consumer lock-in is possible, firms choose pricing consistent with the practice in monopoly and competition. Our result provides a new efficiency argument in the aftermarket literature.

Suggested Citation

  • 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.
    • Handle: RePEc:hit:hitjec:v:55:y:2014:i:2:p:207-228
    DOI: 10.15057/26970
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    aftermarkets; complementary goods; consumer lock-in; durable goods; implicit; financial arrangements;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Aftermarket (merchandise) in Wikipedia English

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