Thursday, October 25, 2012
Does Prohibiting 'Lock-In' Improve Aftermarket Outcomes? Evidence from the Fairness to Contact Lens Consumers Act
Posted by D. Daniel Sokol
James C. Cooper, George Mason University School of Law - Law & Economics Center asks Does Prohibiting 'Lock-In' Improve Aftermarket Outcomes? Evidence from the Fairness to Contact Lens Consumers Act.
ABSTRACT: Because a patient must have a prescription to purchase contact lenses, prescribing eye care professional (ECPs) have incentives to take advantage of locked-in patients. I use the Fairness to Contact Lens Consumers Act (FCLCA) – which outlawed lock-in – as a natural experiment to perform (to my knowledge) the first empirical examination of the effect of lock-in on aftermarket prices. Examination of the pre- and post-FCLCA price gap between ECPs and online sellers indicates that pricing in the contact lens market has not systematically changed since FCLCA. One conjecture from these results is that search costs may be responsible for persistent ECP premiums in this market. To the extent that they are generalizable, these results also indicate that the current antitrust treatment of power derived from proprietary aftermarkets may be welfare reducing.