The Coase conjecture (1972) is the proposition that a durable-goods monopolist, who sells over time and can quickly reduce prices as sales are made, will price at marginal cost. We show that an arbitrarily small deviation from Coase's assumptions-a deviation that applies in almost any practical application-results in the failure of that conjecture. In particular, we examine that conjecture in a model where there is a vanishingly small cost for production (or sales) capacity, and the seller may augment capacity in every period. In the "gap case", any positive capacity cost ensures that in the limit, as the size of the gap and the time between sales periods shrink, the monopolist obtains profits identical to those that would prevail when she could commit "ex ante "to a fixed capacity. Those profits are at least 29·8% of the full static monopoly optimum. Copyright 2008 The Review of Economic Studies Limited.
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Levine, David K & Pesendorfer, Wolfgang, 1995.
"When Are Agents Negligible?,"
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Wolfgang Pesendorfer & David Levine, 1992.
"When are Agents Negligible?,"
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1018, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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R. Preston McAfee & Daniel Vincent, 1994.
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Discussion Papers
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