Monopoly, Time Consistency, and Dynamic Demands
AbstractThis paper examines monopolistic behavior in a framework with dynamic demands. We show that time consistent output and pricing policies yield different equilibrium outcomes in terms of profits and welfare. In a simple two-period model, we find that pricing policies impose less restrictive constraints on a producer of addictive goods, allowing him to attain higher equilibrium profits. In contrast, a durable goods producer is better off implementing output policies. We study the effect of instrument selection on the strategic properties of the monopolist’s intra- personal game. Intertemporal substitutabilities imply that current and future prices are strategic complements, while current and future output levels may be strategic substitutes. Intertemporal complementarities reverse the strategic properties of these instruments. Copyright Springer Science+Business Media New York 2013
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Bibliographic InfoArticle provided by Springer in its journal Journal of Industry, Competition and Trade.
Volume (Year): 13 (2013)
Issue (Month): 3 (September)
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Web page: http://springerlink.metapress.com/link.asp?id=105724
dynamic demands; monopoly; time consistency; D11; D42; L12;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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