The Inkjet Aftermarket: An Economic Analysis

Replacement ink is available in aftermarkets defined by the products compatible with particular inkjet printers. Aftermarket theory establishes that consumers can be harmed by high prices in these aftermarkets, even if there is some degree of competition in the printer market. Survey evidence shows that consumers have little knowledge of replacement ink prices when they purchase printers. As a result, they become locked in to particular aftermarkets. Only competition in those aftermarkets can discipline price—competition in the printer market is not effective to restrain aftermarket ink prices. Consequently, printer makers have unambiguous incentives to exclude rivals from the replacement ink aftermarkets. Methods for exclusion include the assertion of questionable design patents and the modification of products without corresponding consumer benefits. At present, printer makers enjoy high market shares in their own aftermarkets and they do not compete in each others’ aftermarkets. This study was prepared on behalf of Nu-kote International, Inc. Robert E. Hall is Professor of Economics at Stanford University and Senior Fellow at Stanford’s Hoover Institution.