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Study on Inside Monompoly under Two-Part Pricing of Complementary Products in Competitive Market

Author: GuoHongBing
Tutor: ZhouDianKun
School: Southwestern University of Finance and Economics
Course: Circulation Economics
Keywords: Two-part pricing of complementary products Swithing cost Customer lock-in Inside monopoly Perceived welfare Differentiated evaluation of relative importance
CLC: F274
Type: PhD thesis
Year: 2009
Downloads: 263
Quote: 1
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Abstract


The controversy on the corkage issue reported on TV and in the newspaper is widely in dispute in nowadays society. Throughout the dispute,the corkage problem is not theoretically reasonably explained yet,and it is an embarrassing result that each side has their reasons for or against charging the corkage but can not persuade the other side in the collision of the viewpoint of consumer’s rights with that of the firm’s rights. A prominent question in the corkage controversy is, is it a sort of monopoly behavior that the restaurant charges the consumers for taking wines into the restaurant for consumption? The viewpoint of monopoly behavior complys with the consumers’perception,while does not seem to correspond to the competitive feature of the restaurant industry,which may imply an unknown economic rule behind the facts. Further observations indicate that there are similar pricings in the theoretic literatures and in our real life. All these phenomena induce my academic interest in the explanation of such pricing phenomena in the angle of two-part pricing of complementary products.No matter in the angle of two-part pricing theory research,or in the angle of pricing theory of complementary products,the two-part pricing of complementary products is not reasonably explained theoretically. The complemetarity mentioned for times in the two-part pricing literatures is literally an important but neglected influencing factor. This dissertation explains the adaptivity of two-part pricing of complementary products in competitive markets in such two dimentions as the consumers’behavior feature of differentiated relevant importance evaluation of complementary products and the customer lock-in effect,and puts forward that the potential monopoly power under the customer lock-in condition may lead to the inside monopoly behavior in the actually continuous transaction relation between the firm and the consumers. This theory structure can better explain the reason why the firm applys the two-part pricing and the existence of monopoly behavior in competitive markets.The dissertation includes eight chapters as follows:Chapter 0 Introduction. This chapter deals with the putting forward and the meaning of the issue、main content of the dissertation、logic framework and research method、the innovation and the insufficiencies.Chapter 1 The development of two-part pricing theory. This chapter hackles the development of two-part pricing theory,points out the substantial existence of single product two-part pricing and two-product two-part pricing in the literatures, and emphasizes the neglected two-product two-part pricing.Chapter 2 Putting forward the two-product two-part pricing theory in competitive market and the analysis framework of principle. This chapter compares and distinguishes the two-part pricing in tying of monopoly firm with that of complementary product in competitive markets , points out the complementarity is the indispensible eliment to practice two-product two-part pricing without monopoly power,and the nature of two-product two-part pricing in competitive market is two-part pricing of complementary products,at last this chapter puts forward to establish the analysis framework of principle of two-part pricing of complementary products in two dimensions as the consumer behavior and the customer lock-in effect.Chapter 3 The consumer behavior basis of two-part pricing of complementary products. This chapter puts forward the consumers’purchasing behavior feature—the differentiated relative importance evaluation of complementary products based on the literature research, tries to find the cause of the behavior feature,and tries to point out the meaning of the behavior feature and the according effect on the consumer and the firm.Chapter 4 The adaptability analysis of the two-part pricing of complementary products to the consumers’behavior feature of differentiated relavant importance evaluation. Based on the consumers’behavior feature of differentiated relavant importance evaluation,this chapter puts forward the concept of perceived welfare,and grounded on the concept constructs the principle analysis model of two-part pricing of complementary products,explains the typical pricing characteristic of two-part pricing in the competitive market,and advances that the purchasing behavior feature of the consumer mentioned above is the consumer behavior basis of two-part pricing in the competitive market. After that, this chapter analyses the effect of the typical pricing feature of two-part pricing and the applicability of two-part pricing. This analysis paves the way for the analysis of customer lock-in effect in chapter 5.Chapter 5 Customer lock-in strategy. Based on reviewing the literatures on customer lock-in theory,this chapter sums up the cause of formation in customer lock-in、the type of switching costs and the type of customer lock-in,maintains that when consumers buy product 1,they have to continue to buy product 2 from the same manufacturer , which leads to customer lock-in in the sale of complementary product,and points out the pricing strategy in this situation is actually a typical kind of two-part pricing of complementary products,in the end this chapter depicts the way that this typical two-part pricing of complementary products is carried out.Chapter 6 Inside monopoly and the regulation. This chapter discusses the relation between customer lock-in and monopoly,puts forward the concept、causes of formation、feature、theoretic and practical meaning of inside monopoly,argues that in the absence of regulation,the potential monopoly power will lead to the real monopoly behavior,and attempts to advance the corresponding regulation measures to the inside monopoly behavior.Chapter 7 The cases. In chapter 7,two cases are listed to confrm the two-part pricing and inside monopoly theory. Case one is the typical case of two-part pricing of complementary products in competitive market—the corkage problem that abounds in dispute. With this case,the chapter confirms the existence of inside monopoly under two-part pricing of complementary products in competitive markets; Case two deals with the classic pricing of razor and razor blades by Gillette Company,and also“the mode of razor plus razor blades”. In the end,this chapter introduces in brief the two-part pricing of complementary products of printer and ink box in domestic market.There are such innovative viewpoints as follows in the dissertation: 1.The dissertation puts forward the proposition of“two-part pricing of complementary products in competitive market”.Based on the two-product two-part pricing theory,the dissertation advances the proposition of“two-part pricing of complementary products in competitive market”.Although it is not specially mentioned,the two-part pricing theory mainly focuses on the single-product two-part pricing problems. Despite the fact that some researches take similar pricing that relates to two products as two-part pricing,the two-product two-part pricing theory is not yet definitely developed. The dissertation points out the differences in research instrument and research method between the two kind of two-part pricing,then brings forward the concept of two-product two-part pricing theory,and through the comparison with the two-part pricing in tying of monopoly firm,further maintains that the nature of two-product two-part pricing in competitive market is that of complementary products. This viewpoint helps explain the inside monopoly in the competitive market of complementary products,which is also the reason why the dissertation puts forwand the proposition of“two-part pricing of complementary products in competitive market”.2.Based on the consumers’behavior feature of differentiated relavant importance evaluation to complementary products,the dissertation advances the concept of perceived welfare,and constructs theoretic model to explain the adaptability of the two-part pricing of complementary products to the consumers’behavior feature of differentiated relavant importance evaluationBased on relevant literatures,this dissertation tries to explain the reasons why the the consumers’differentiated relavant importance evaluation comes into being,and brings forward the concept of perceived welfare to depict the way the consumers draw their decisions in the purchase decision of complementary products,then constructs the theoretic model to analyse the pricing principle of two-part pricing of complementary products in competitive markets,which explains the adaptability of the two-part pricing of complementary products to the consumers’behavior feature.3.Definition and systematic analysis of customer lock-in effect and inside monopoly in the marketing of complementary productsThe theoretic literatures on customer lock-in mentioned the customer lock-in phenomena in marketing of complementary products or assets,while did not further analyse the detailed reason why customer lock-in comes into being. The dissertation argues that complementarity can not naturally cause the formation of customer lock-in,the reason why the firms can exert customer lock-in on the consumers based on the complementarity is that,based on the complementarity, the firms use some differentiated product design or compulsory request,which make product 2 of different firms can not be compatible with each other,so that after the purchase of product 1 form specific firm,the consumers can not buy product 2 from other firms,which finally leads to customer lock-in.Based on the relevant literatures,this dissertation points out that with the firm’s opportunism and the lack of regulation,the potential monopoly power under customer lock-in can be transformed into substantial monopoly behavior. As such monopoly behavior takes place in the continuous transaction relation about the complementary products between the firm and the consumers,it is defined as inside monopoly. The inside monopoly is highly implicit so that we can not recognize it theoretically,which is the key factor that brought about the fierce dispute on whether there is monopoly behavior in the charge of corkage by the restarant.4. The construction of theoretic analysis framework of two-part pricing of complementary products in two dimentionsThe typical pricing feature of two-part pricing of complementary products in competitive markets is,the firm sets the pricing of product 1 at a relative low level,while set the pricing of product 2 at a relative high level. In such two dimentions as the adaptivity of two-part pricing to the cosumers’behavior feature and the customer lock-in effect , on the one hand , two-part pricing of complementary products is adapted to the consumers’purchase behavior,making the consumers’perceived welfare going up,stimulating the consumers to take part in the purchase of product 1,which finally urges the formation of customer lock-in; on the other hand,the customer lock-in effect helps the firm lock in the consumers and realize the relative high price of product 2. In this way,the dissertation explains the principle of two-part pricing of complementary products in competitive markets.5. Regulation suggestion of inside monopolyThe dissertation points out that according to the domestic and overseas anti-monomoly cases,the anti-monopoly government sectors can notice the explicit monopoly in bundling and tying and take corresoponding measures to regulate it,but they fail to pay attention to the implicit monopoly of inside monopoly.The formation of inside monopoly is owing to several factors,among which the most important factor is customer lock-in. Under customer lock-in,the firm has some monopoly power,which mades the inbalance in bargaining power and position of the firm and the consumers in the transaction,and the consumers are in the weaker position in the mutual transaction relation,therefore,the regulation rule is to introduce institutional intervene in the relation to make both sides equal in their bargaining power and transaction status.There is also some defects in the dissertation,for example,as to research method in two-product two-part pring research,the dissertation mainly uses theoretic reasoning method,including deductive method、inductive method and comparative method. Although thereis no defects in the use of the former two methods,the research can not be rigorous enough with the lack of empirical research. For example,the dissertation interprets the empirical research result of Yadav(1994)as such that the differentiated evaluation of relative importance of complementary products by consumers derives from complementarity itself. Although the dissertation tries to handle the theoretic reasoning with rigorous logic,the lack of empirical research makes the interpretation above is not so religious.

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