Interfering with secondary markets

We present a model to address in a unified manner four ways in which a mono polist can interfere with secondary markets. In the model, consumers have h eterogeneous valuations for quality so that used-good markets play art allo cative role. Our results are the following: (1) In contrast to Swan's famou s independence result a monopolist does not provide socially optimal durabi lity. (2) Allowing the monopolist to rent does not restore socially optimal durability and increases the monopolist's market power in the used market. However, forcing the monopolist to sell the goods may be a bad policy beca use it would lend to either lower output or lower durability. (3) The manuf acturer benefits from a well functioning used-good market despite the fact that used goods provide competition for new goods. (4) The monopolist prefe rs to restrict consumers' abilities to maintain the good.