This paper studies the common pricing practice of firms selling a durable good at a low price and a complementary consumable good at a high price. In our model, consumers discount future payments while firms receive a steady-state flow of revenues from selling the durable and consumable goods. As a result, there are potential gains from deferring consumers' payments to the future. We show that when firms commit to constant prices and consumer lock-in is possible, firms choose pricing consistent with the practice in monopoly and competition. Our result provides a new efficiency argument in the aftermarket literature.
|Number of pages||22|
|Journal||Hitotsubashi Journal of Economics|
|Publication status||Published - 2014 Dec 1|
All Science Journal Classification (ASJC) codes
- Business, Management and Accounting(all)
- Economics and Econometrics