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Consumer myopia, compatibility and aftermarket monopolization

Author

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  • Miao, Chun-Hui

Abstract

In this paper, I show that the standard Bertrand competition argument does not apply when firms compete for myopic consumers who optimize period-by-period. I develop the model in the context of aftermarket. With overlapping-generations of consumers, simultaneous product offerings in the primary market and aftermarket establishes a price floor for the primary good. This constraint prevents aftermarket rents from being dissipated by the primary market competition. Duopoly firms earn positive profits despite price competition with undifferentiated products. Nonetheless, government interventions to reinforce aftermarket competition such as a standardization requirement may lead to the partial collapse of the primary market.

Suggested Citation

  • Miao, Chun-Hui, 2005. "Consumer myopia, compatibility and aftermarket monopolization," MPRA Paper 20328, University Library of Munich, Germany, revised 2009.
    • Handle: RePEc:pra:mprapa:20328
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    File URL: https://mpra.ub.uni-muenchen.de/20328/1/MPRA_paper_20328.pdf
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    More about this item

    Keywords

    aftermarket; Bertrand competition; bounded rationality; standardization.;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General

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