Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Imperfect durability and the Coase conjecture

Imperfect durability and the Coase conjecture This article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time. We show that there exist three types of stationary equilibria: a Coase Conjecture equilibrium, a monopoly equilibrium, and a reputational equilibrium. When the depreciation rate is low, the Coase Conjecture equilibrium is the unique equilibrium. For intermediate values of the depreciation rate, all three equilibrium types coexist. When the depreciation rate is high, the monopoly equilibrium is the unique equilibrium. Consequently, when selling a good of sufficiently low durability, the monopolist does not lose any of her monopoly power. Furthermore, the steady‐state output in the reputational equilibrium falls below the monopoly quantity. Hence, in durable goods markets, welfare losses due to monopoly power may be larger than in markets for perishables. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Rand Journal of Economics Wiley

Imperfect durability and the Coase conjecture

Loading next page...
 
/lp/wiley/imperfect-durability-and-the-coase-conjecture-SSHErm9KWP

References (40)

Publisher
Wiley
Copyright
©2008, RAND
ISSN
0741-6261
eISSN
1756-2171
DOI
10.1111/j.1756-2171.2008.00001.x
Publisher site
See Article on Publisher Site

Abstract

This article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time. We show that there exist three types of stationary equilibria: a Coase Conjecture equilibrium, a monopoly equilibrium, and a reputational equilibrium. When the depreciation rate is low, the Coase Conjecture equilibrium is the unique equilibrium. For intermediate values of the depreciation rate, all three equilibrium types coexist. When the depreciation rate is high, the monopoly equilibrium is the unique equilibrium. Consequently, when selling a good of sufficiently low durability, the monopolist does not lose any of her monopoly power. Furthermore, the steady‐state output in the reputational equilibrium falls below the monopoly quantity. Hence, in durable goods markets, welfare losses due to monopoly power may be larger than in markets for perishables.

Journal

The Rand Journal of EconomicsWiley

Published: Mar 1, 2008

There are no references for this article.