Competition, Monopoly, and Aftermarkets

Posted by D. Daniel Sokol

Dennis W. Carlton (University of Chicago - Graduate School of Business) and Michael Waldman (Cornell - Johnson School of Business) address Competition, Monopoly, and Aftermarkets.

ABSTRACT: Consider a durable goods producer that has the option of monopolizing an aftermarket such as repair for its own product. An important question is whether such monopolization reduces welfare? We show that the answer to this question is frequently no. In particular, we explore three models that illustrate various ways in which aftermarket monopolization can reduce inefficiencies and thus increase social welfare and frequently also consumer welfare. Our article shows that efficiency enhancing aftermarket monopolization may be much more common than previous literature suggests.