Interfering with secondary markets

Igal Hendel, Alessandro Lizzeri

    Research output: Contribution to journalArticle

    Abstract

    We present a model to address in a unified manner four ways in which a monopolist can interfere with secondary markets. In the model, consumers have heterogeneous valuations for quality so that used-good markets play an allocative role. Our results are the following: (1) In contrast to Swan's famous independence result, a monopolist does not provide socially optimal durability. (2) Allowing the monopolist to rent does not restore socially optimal durability and increases the monopolist's market power in the used market. However, forcing the monopolist to sell the goods may be a bad policy because it would lead to either lower output or lower durability. (3) The manufacturer benefits from a well functioning used-good market despite the fact that used goods provide competition for new goods. (4) The monopolist prefers to restrict consumers' abilities to maintain the good.

    Original languageEnglish (US)
    Pages (from-to)1-21
    Number of pages21
    JournalRAND Journal of Economics
    Volume30
    Issue number1
    DOIs
    StatePublished - 1999

    ASJC Scopus subject areas

    • Economics and Econometrics

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