The Economics of Customer Lock-In and Market Power in Services

Abstract

Many service businesses provide aftermarket services, which may include parts, maintenance, consulting, upgrades and modifications to durable consumer and business equipment. A diverse group of products, such as dishwashers, automobiles, and highly complex electronic equipment (computers, telephone switches, medical imaging devices, etc.), spawn service markets. Typically, the first firm offering service to owners of durable equipment is the original equipment manufacturer (OEM) itself; after all, it already has parts and expertise. Often, the only service provider is the manufacturer. The broad question in this paper is the effect on the manufacturer and on consumers if a manufacturer is the only service provider for equipment it sells.

MacKie-Mason has testified as an expert witness for the plaintiffs in some of the cases cited below.