Durable Goods Markets and Aftermarkets
Durable goods are goods whose useful lifetime spans multiple periods.
KeywordsAdverse selection Aftermarket monopolization Aftermarkets Akerlof, G. Asymmetric information Bundling Coase, R. Commitment Complementary goods Deadweight loss Durable goods markets Durable-goods monopoly problem Hold-up theories Information costs Leasing Market power Optimal durability Price discrimination Product-line pricing problem Second-hand markets Time inconsistency Tying
There is an extensive literature on durable-goods markets that starts with the work of Akerlof, Coase, and Swan in the early 1970s. In this entry I survey the literature by starting with the three theoretical building blocks of time inconsistency, adverse selection, and substitutability between new and used units. I then focus on our understanding of three important real-world issues. These are whether firms choose optimal durability levels, whether firms have incentives to eliminate second-hand markets, and reasons for leasing. The article also provides an extensive discussion of aftermarket monopolization.
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