Refusals to deal and orders to supply in competitive markets

A number of recent antitrust cases in North America and Europe have involve d allegations that manufacturers of durable products have refused to supply parts to independent service organizations, apparently to monopolize the m arket for repairs of their products. This paper analyzes such refusals in a competitive market and connected aftermarket. In this model, the refusals help to support higher prices for high intensity-high value users; however, these higher charges permit the recovery of higher costs incurred during a n initial warranty period. Since full prices equal full marginal costs in e quilibrium, the refusals permit the attainment of a first-best outcome and an attempt by antitrust authorities to force supply will be welfare-reducin g. (C) 1999 Elsevier Science B.V. All rights reserved.