Hodaka Morita and Michael Waldman
Durable-goods producers frequently choose to monopolize the maintenance markets for their own products. This paper shows that, similar to leasing, one reason a firm may employ this practice is that it reduces or even eliminates problems due to time inconsistency. We first demonstrate this result in a setting closely related to Bulow’s (1982) classic analysis of durable-goods monopoly. We then show the result in a setting similar to those considered in Waldman (1996, 1997) and Hendel and Lizzeri (1999), in which new and used units are imperfect substitutes. The paper also discusses alternative explanations for the phenomenon.