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11-16-09 - going to steal the technology • The latter...

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Economics 448 – Class Notes – 11/16/09 Research and Repair: Research expenses – high concern Competition in the Market: Leasing: Efficient alternative to sales 35% of equipment is leased in the U.S Several factors to either leasing or buying Leasing benefits: o Assurance of quality o Expert knowledge Assurance of Quality: Warranties are contracts and have the same costs as regular contract Contracting for knowledge: If there is a correlation between index revenue and information value… Lease Design: Free ride Customers free ride on manufacturer’s knowledge Much of the information provided by united shoe – applied to competitor’s machines Lease pricing – unit charges and flat rate charges At the time there were 80 firms United Shoe was competing with United Shoe made machines that made shoes, they didn’t make shoes United wanted to ensure its valuable information. Contract enforcement problem Customers worried about quality of machine or was it that United was worried customers were
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Unformatted text preview: going to steal the technology? • The latter- there are contract enforcement problems • There is an information problem Was there anything done to deter the customer from abusing the equipment because the customer does bear the costs of abuse, the manufacturer does. The customer has limited liability • The machine(s) could be seized if not used enough Minimum usage clause: • This part of the contract is solving the IP problem • If the end users had to use the machine(s), that reduces the incentive to break the machine down and learn how they work. • It is anti-competitive according to the government because it penalizes customers for using a competitor’s product because the assumption is that if the customer isn’t using United Shoe’s equipment, they are probably using a competitor’s product...
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11-16-09 - going to steal the technology • The latter...

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