This paper solves for the profit maximising strategy of a durable—goods monopolist when incoming demand varies over time. Each period, additional consumers enter the market; these consumers can then choose whether and when to purchase. This asymmetry pushes the price level above that charged by a firm facing the average level of demand.
The effect of a finite time horizon in the durable good monopoly problem with atomic consumers Authors: A durable good is a long-lasting good that can be consumed repeatedly over time, and a duropolist is a monopolist in the market of a durable good.
InRonald Coase conjectured that a duropolist who lacks commitment power cannot sell the good above the competitive price if the time between periods approaches zero.
Coase's counterintuitive conjecture was later proven by Gul et al. Remarkably, the situation changes dramatically for atomic consumers and an infinite time horizon. Observe that, in these cases, duropoly profits are either arbitrarily smaller or arbitrarily larger than the corresponding static monopoly profits -- the profit a monopolist for an equivalent consumable good could generate.
In this paper we show that the result of Bagnoli et al.
Indeed, we prove that for finite time horizons and atomic agents, in any equilibrium satisfying the standard skimming property, duropoly profits are at most an additive factor more than static monopoly profits. In particular, duropoly profits are always at least static monopoly profits but never exceed twice the static monopoly profits.
Finally we show that, for atomic consumers, equilibria may exist that do not satisfy the skimming property. For two time periods, we prove that amongst all equilibria that maximize duropoly profits, at least one of them satisfies the skimming property.
We conjecture that this is true for any number of time period.Title: Durability and Monopoly Created Date: Z.
The Provision of Incentives in Durable Goods Firms held by a monopolist who produces a non-durable good. In a classic paper, Coase () conjectures that a monopoly seller of an inﬁnitely durable good cannot sell The problem is that in a dynamic theory of the durable-goods monopoly, the.
Abstract: A durable good is a long-lasting good that can be consumed repeatedly over time, and a duropolist is a monopolist in the market of a durable good. In , Ronald Coase conjectured that a duropolist who lacks commitment power cannot sell the good above the competitive price if the time between periods approaches zero.
The Coase conjecture, Coase (), stipulates that a monopolist selling a new durable good cannot credibly commit to the monopoly price, because once this price has been announced, the monopolist will have an incentive to reduce his price in order.
In a seminal article, Coase (, ) conjectured that purchasers of durable products will correctly recognize that the firm will have an incentive to reduce the price (increase production) in future periods.
Price Dynamics for Durable Goods Michal Fabinger Gita Gopinath Oleg Itskhoki Harvard Harvard Princeton Durable Monopoly Pricing Coase conjecture |Coase (), Stokey (), Bulow (), Gul et al. (), Durable Good Monopoly Discretion Time inconsistency problem.