Journal Article Consumer Search and Alternative Market Equilibria Get access Avishay Braverman Avishay Braverman The World Bank Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 47, Issue 3, April 1980, Pages 487–502, https://doi.org/10.2307/2297300 Published: 01 April 1980 Article history Received: 01 February 1978 Accepted: 01 June 1979 Published: 01 April 1980

This paper shows that firms endowed with monopoly power can utilize an optional service contract form of guarantee as an instrument for effecting a surplus extracting two-part tariff. The monopolist finds it optimal to produce, guarantee and replace defective units, even if a zero defect rate could be achieved at no additional production cost. It is also shown that the price per unit is greater than the “effective” marginal cost; it may even be higher than the pure monopoly price. Moreover the monopolist is unable to extract all of the consumers surplus. Thus, that optional service contract policy can provide an effective yet defensible form of price discrimination as an alternative to possible illegal tie-ins, quantity discounts and simple two-part tariffs.

Journal Article Consumer Search and Market Equilibria: A Note Get access Avishay Braverman, Avishay Braverman The World Bank Search for other works by this author on: Oxford Academic Google Scholar Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 48, Issue 4, October 1981, Pages 657–658, https://doi.org/10.2307/2297205 Published: 01 October 1981 Article history Received: 01 June 1981 Accepted: 01 July 1981 Published: 01 October 1981