In economic literature, the term "aftermarket" refers to a secondary market for the goods and services that are 1) complementary or 2) related to its primary market goods (original equipment). In many industries, the primary market consists of durable goods, whereas the aftermarket consists of consumable or non-durable products or services.
Accordingly, the "aftermarket goods" mainly include products and services for replacement parts, upgrade, maintenance and enhancement of the use of its original equipment. Examples of durable goods and their associated aftermarket goods and services include: razor handle mounts and disposable razor blades designed to mount in that handle; computer printers and their matching printer cartridges; and new cars and optional upgrades that can be installed after the car is purchased, such as car stereos or fog lights.
Elements
There are two essential elements of the aftermarket: installed base and lock-in effect.
Installed base
A certain level of installed base of original equipment customers is necessary for the sufficient demand of aftermarket products.
Therefore, significant installed base normally makes aftermarket profitable as an established installed base is likely to consume the aftermarket products repeatedly over the lifespan of their durable goods.
Lock-in effect (also installed-base opportunism) Lock-in effect or installed-base opportunism refers to the situation where the customers can only consume the aftermarket goods produced by original equipment manufacturer.
The reason could be: Compatibility between primary and aftermarket goods which requires switching costs of original equipment contractual means which imposes penalty provision of incentives to use specific primary and aftermarket products
These two essentials, installed base and lock-in effect, make aftermarket less volatile relative to primary market and therefore more likely to be profitable.
Strategy
The most well-known aftermarket strategy model is "Gillette’s razor and blades business model" also known as "freebie marketing" whereby a product is largely discounted or even free as a loss leader in order to increase the sales of its complementary goods.
In the razor and blades example, a company may sell a razor handle (in which blades can be mounted) inexpensively, with the goal of having customers buy blades to mount in the handle. With printers and ink cartridges, the company may sell the printer inexpensively, so that customers will purchase new printer cartridges and/or ink.
Often the durable goods are offered at a low price (or even below marginal cost) in order to attract new customers amid competitive primary markets and the loss from the primary market will be rebated by the profits from consumables in aftermarket. In this case, an established installed base is essential to ensure sustainable business practice.
Tying or bundling of aftermarket products with original equipment also could be the strategies for aftermarket.
Examples
Inkjet printers and toner cartridges are well-known examples of original equipment and their aftermarket products. Many inkjet printer manufacturers employ technology which renders their printers compatible only with printer cartridges they also manufacture in order to increase their aftermarket profits. Many mobile network carriers offers contracts by which consumers could get a mobile phone device for a lower price or even free in exchange for long-term network service contract. Some automobiles only could be fixed by the specially trained engineers from the company manufacturing those cars.
Monopolisation
There have been a significant number of economic literature discussing about the aftermarket monopolisation after US Supreme Court’s 1992 decision in the case Eastman Kodak Company v. Image Technical Service. The key issue of the debate is whether the monopolisation in the aftermarket harms customers and social welfare.
Chicago school
The Chicago school economists and advocates of this approach assert that aftermarket monopolization would not be harmful for the following reasons: