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Quality differentiation in durable goods monopoly always yields strictly positive profits

Author

Listed:
  • Didier Laussel

    (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE)

  • Ngo Van Long

    (Department of Economics, McGill University)

Abstract

A durable good monopolist can discriminate between buyers in each period by offering them a sequence of price-quality menus (second-degree price discrimination). We show that, contrary to the Coase conjecture for the homogeneous durable good monopoly, under vertical differentiation, when the consumers base their expectations on the size of the market at the end of each period, the profit of a monopolist that cannot commit to future price-quality menus is bounded below by a strictly positive value independent of the discount factor.

Suggested Citation

  • Didier Laussel & Ngo Van Long, 2022. "Quality differentiation in durable goods monopoly always yields strictly positive profits," Economics Bulletin, AccessEcon, vol. 42(2), pages 546-552.
    • Handle: RePEc:ebl:ecbull:eb-21-01131
    as

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    References listed on IDEAS

    as
    1. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    2. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
    3. Laussel, Didier & Long, Ngo Van & Resende, Joana, 2020. "Quality and price personalization under customer recognition: A dynamic monopoly model with contrasting equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 114(C).
    4. Inderst, Roman, 2008. "Durable goods with quality differentiation," Economics Letters, Elsevier, vol. 100(2), pages 173-177, August.
    5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    product quality; durable good monopoly; second-degree price discrimination; Coase conjecture.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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