Prague Economic Papers 2012, 21(1):18-29 | DOI: 10.18267/j.pep.408

Maintenance Commitments for Monopolized Goods

Pu-yan Nie
Institute of Industrial Economics, Jinan University, Guangzhou, 510632, P.R. China (pynie2005@yahoo.com.cn).

This paper highlights the monopoly firms' commitments for goods requiring high maintenance expenditure, such as elevators, televisions and computers. A guarantee time limit model to maintain these special goods is presented in this paper. Based on this model, several types of commitments with different guarantee time limits are compared under monopoly conditions. This paper finds that the guarantee pattern has no effect on the monopoly firm's profits if all information is known to both the consumer and the monopolist. It is also shown that if a monopoly firm exaggerates its product quality claims in its advertisements, then it cannot meet its warranty guarantees. Industrial organizational theory is employed to analyze maintenance guarantees in this work.

Keywords: price, market structure, game theory, industrial organization, maintain, commitment, guarantee
JEL classification: C61, C72, D4, L1

Published: January 1, 2012  Show citation

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Nie, P. (2012). Maintenance Commitments for Monopolized Goods. Prague Economic Papers, 21(1), 18-29. doi: 10.18267/j.pep.408
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