The paper studies monopoly pricing of a vertically differentiated durable good in a two-period model. It provides an explanation for seemingly unusual practice of a firm selling a "degraded good," arguing that the presence of Coasian dynamics may lead to the sale of the degraded good that is not less costly to produce than a high-quality good. The main finding is that when the firm can identify previous customers only if they voluntarily reveal their past purchases, it sells the degraded good along with the high-quality good in the first period. When the firm sells an upgrade of the degraded good, the price of the high-quality good cannot be "too low" in the second period, since otherwise the upgrading customers would pretend to be new customers. Thus the firm can enhance first-period sales while mitigating consumers' incentive to wait until the next period.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Find related papers by JEL classification: D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: