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Does Aftermarket Monopolization Facilitate Upstream Collusion?

Author

Listed:
  • Long Cheng

    (Shandong University)

  • Guangliang Ye

    (Hainan University)

Abstract

This paper explores the stability of collusion among upstream firms that sell to downstream firms with an aftermarket. Consumer lock-in that is due to aftermarket monopolization prevents the deviating firm from capturing the aftermarket of its rivals—which reduces the deviation profits. On the other hand, this lock-in mitigates the severity of the punishments by locking in the old consumers in the aftermarket. The latter effect dominates the former, which makes collusion unstable in the aftermarket monopolization case. This effect with respect to reducing collusion stability remains robust under an asymmetric aftermarket structure. Ironically, when the size of the monopolistic aftermarket is large enough, increasing the aftermarket size stabilizes the collusion. In contrast to prior literature, there is an inverted U-shaped relationship between the stability of collusion and collusive prices in the presence of an aftermarket.

Suggested Citation

  • Long Cheng & Guangliang Ye, 2025. "Does Aftermarket Monopolization Facilitate Upstream Collusion?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(3), pages 325-347, March.
    • Handle: RePEc:kap:revind:v:66:y:2025:i:3:d:10.1007_s11151-024-09997-3
    DOI: 10.1007/s11151-024-09997-3
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    More about this item

    Keywords

    Collusion stability; Aftermarket monopoly; Lock-in effect; Vertical market;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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