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Durable Goods, Monopoly Maintenance, and Time Inconsistency
Author(s) -
Morita Hodaka,
Waldman Michael
Publication year - 2004
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2004.00011.x
Subject(s) - durable good , monopoly , imperfect , economics , microeconomics , phenomenon , dynamic inconsistency , industrial organization , business , linguistics , philosophy , physics , quantum mechanics
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.