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Tying and Market Power

Author

Listed:
  • Severin Borenstein

    (University of Michigan, Dept of Economics)

  • Jeff MacKie-Mason
  • Janet Netz
Abstract
Many businesses provide aftermarket services, including parts, maintenance, consulting, upgrades and modifications to durable consumer and business equipment. We investigate the effect on the original equipment manufacturer and on consumers if the manufacturer is the only (monopoly) service provider for the equipment it sells. Controlling the service market may be a profitable strategic objective, but there are several possible problems. The firm needs a durable intellectual property advantage to dominate independent service organizations. Even with such an advantage, active competition from vendors of alternate original equipment may force the manufacturer to dissipate service profits through equipment market competition to obtain market share. Further, the courts appear to be sympathetic to antitrust claims against manufacturers when they attempt to extend their proprietary control over one component of service to monopoly control overall all service provision. We also find that reputation effects may prevent manufacturers from fully exploiting their monopoly power in the aftermarket, but that reputation does not generally lead to competitive prices.

Suggested Citation

  • Severin Borenstein & Jeff MacKie-Mason & Janet Netz, 1994. "Tying and Market Power," Industrial Organization 9401001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9401001
    Note: Postscript file submitted via ftp in compressed format.
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    References listed on IDEAS

    as
    1. Severin Borenstein & Jeffrey K. Mackie‐Mason & Janet S. Netz, 2000. "Exercising Market Power in Proprietary Aftermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 157-188, June.
    2. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring.
    3. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-666, May.
    4. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    5. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn.
    Full references (including those not matched with items on IDEAS)

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