Accidents, Liability Obligations and Monopolized Markets for Spare Parts: Profits and Social Welfare

25 Pages Posted: 6 May 2008

See all articles by Pio Baake

Pio Baake

German Institute for Economic Research (DIW Berlin)

Date Written: April 2008

Abstract

We analyze the effects of accidents and liability obligations on the incentives of car manufacturers to monopolize the markets for their spare parts. We show that monopolized markets for spare parts lead to higher overall expenditures for consumers. Furthermore, while the manufacturers invest more in order to offer cars with higher qualities, monopolization tends to reduce social welfare. Key for these results is the observation that high prices for spare parts entail a negative external effect inasmuch as liability obligations imply that consumers of competing products have to pay the high prices as well.

Keywords: aftermarkets, monopolization, liability

JEL Classification: L13, L42, D43

Suggested Citation

Baake, Pio, Accidents, Liability Obligations and Monopolized Markets for Spare Parts: Profits and Social Welfare (April 2008). DIW Berlin Discussion Paper No. 782, Available at SSRN: https://ssrn.com/abstract=1129753 or http://dx.doi.org/10.2139/ssrn.1129753

Pio Baake (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany