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Path Dependence as a Path to Consumer Surplus and Loyalty

Author

Listed:
  • Sherzod B. Akhundjanov

    (Utah State University)

  • Ben O. Smith

    (University of Nebraska at Omaha)

  • Max St. Brown

    (Bonneville Power Administration)

Abstract

In the technology and design industries, one product builds on another: A smart television enhances a smart phone. However, due to complementary features, the utility that is gained by owning both products from the same firm is greater than the sum of the two products’ utility if purchased from separate firms. Aftermarkets suggest that the margins of the second product would increase. Instead, we show that the firms’ complementary utility offset each other, which results in reduced prices. Further, consumer purchase behavior is a function of the product release order; given a different release schedule, some consumers would purchase from a different company.

Suggested Citation

  • Sherzod B. Akhundjanov & Ben O. Smith & Max St. Brown, 2023. "Path Dependence as a Path to Consumer Surplus and Loyalty," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(1), pages 1-20, August.
    • Handle: RePEc:kap:revind:v:63:y:2023:i:1:d:10.1007_s11151-023-09904-2
    DOI: 10.1007/s11151-023-09904-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Aftermarkets; Bounded rationality; Complementary goods; Hotelling; Path dependence;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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