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Quality, upgrades and equilibrium in a dynamic monopoly market

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  • Anton, James J.
  • Biglaiser, Gary

Abstract

We examine an infinite horizon model of quality growth for a durable goods monopoly. The seller may offer any bundle(s) of current and previous quality improvements (upgrades). Subgame perfect equilibrium seller payoffs range from capturing the full social surplus down to only the initial flow value of each good, as long as the value of all future quality growth exceeds the value of a single unit. Each of these payoffs is realized in a Markov perfect equilibrium that follows the socially efficient path. However, inefficient delay equilibria, with bundling, exist for innovation rates above a threshold.

Suggested Citation

  • Anton, James J. & Biglaiser, Gary, 2013. "Quality, upgrades and equilibrium in a dynamic monopoly market," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1179-1212.
    • Handle: RePEc:eee:jetheo:v:148:y:2013:i:3:p:1179-1212
    DOI: 10.1016/j.jet.2012.12.006
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    References listed on IDEAS

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    1. repec:prg:jnlpep:v:preprint:id:712:p:1-16 is not listed on IDEAS
    2. Yong-Cong Yang & Pu-Yan Nie & Zhao-Hui Wang & Tan Zheng-Xun, 2019. "Spatial Monopoly with Upgrades of Durable Goods," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(5), pages 516-531.
    3. Xiong, Yu & Zhao, Pei & Xiong, Zhongkai & Li, Gendao, 2016. "The impact of product upgrading on the decision of entrance to a secondary market," European Journal of Operational Research, Elsevier, vol. 252(2), pages 443-454.

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    More about this item

    Keywords

    Upgrades; Durable goods; Monopoly; Market power; Coordination; Bundling;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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