Pricing of complementary goods as an implicit financial arrangement

Jinhyuk Lee, Jaeok Park

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish
Pages (from-to)207-228
Number of pages22
JournalHitotsubashi Journal of Economics
Volume55
Issue number2
Publication statusPublished - 2014 Dec 1

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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