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Lee, Jin Hyuk
School of Business Administration
Research Interests
  • Industrial Organization
  • Applied Microeconomics
  • Applied Econometrics

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PRICING OF COMPLEMENTARY GOODS AS AN IMPLICIT FINANCIAL ARRANGEMENT

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Title
PRICING OF COMPLEMENTARY GOODS AS AN IMPLICIT FINANCIAL ARRANGEMENT
Author
Lee, Jin HyukPark, Jae Ok
Keywords
aftermarkets; complementary goods; consumer lock-in; durable goods; implicit financial arrangements
Issue Date
2014-12
Publisher
HITOTSUBASHI ACAD
Citation
HITOTSUBASHI JOURNAL OF ECONOMICS, v.55, no.2, pp.207 - 228
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.
URI
https://scholarworks.unist.ac.kr/handle/201301/10282
ISSN
0018-280X
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SBA_Journal Papers
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