Eli LoCicero

Job market paper

Raising Rivals' Costs Through Product Characteristics: Evidence from Remanufactured Goods

This paper empirically explores how raising rivals’ costs (RRC) by a dominant firm affects competition and consumer welfare in markets for remanufactured goods. In this setting, the original equipment manufacturers (OEMs) have incentives to implement product characteristics that increase the cost of remanufacture. Using data on printer and ink cartridge sales, I present evidence that printer/ink OEMs effectively use this strategy to mitigate competition from remanufacturers. I then develop a structural model of consumer demand for printers which accounts for remanufactured ink, and for competition among the OEMs and between the OEMs and remanufacturers. Using this model, I estimate that the OEMs' strongest RRC strategies raise remanufacturers' marginal costs by 40% compared to weaker strategies. I estimate the welfare effects associated with remanufacturer operations, and last, I find modest welfare gains in regulatory counterfactuals that constrain OEM product design.