Refusals to deal and orders to supply in competitive markets

A number of recent antitrust cases in North America and Europe have involved allegations that manufacturers of durable products have refused to supply parts to independent service organizations, apparently to monopolize the market 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 an initial warranty period. Since full prices equal full marginal costs in equilibrium, the refusals permit the attainment of a first-best outcome and an attempt by antitrust authorities to force supply will be welfare-reducing. (C) 1999 Elsevier Science B.V. All rights reserved.