Price Discrimination via Proprietary Aftermarkets : Contributions in Economic Analysis & Policy

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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Zulehner, Christine


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Price Discrimination via Proprietary Aftermarkets

Eric R. Emch1

1U.S. Dept. of Justice Antitrust Division,

Citation Information: Contributions in Economic Analysis & Policy. Volume 2, Issue 1, ISSN (Online) 1538-0645, DOI: 10.2202/1538-0645.1063, April 2003

Publication History

Published Online:
2003-04-02

Abstract

Price markups over marginal cost are often higher on aftermarket parts and services for durable goods than they are on the goods themselves. A popular explanation is that the aftermarket good is used as a “metering” device. This paper explores what happens in the metering model as foremarket competition increases, and examines the implications of adding an optional enhancement to the model along with the aftermarket input. It finds that as foremarket competition increases, markups in the aftermarket drop to zero before markups in the foremarket. It also finds that an optional enhancement may expropriate the metering role of an aftermarket input.

Keywords: aftermarkets; price discrimination; two-part tariffs

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