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Durable Good Monopolies with Rational Expectations and Replacement Sales

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  • Eric W. Bond
  • Larry Samuelson

Abstract

A monopoly producer of a durable good is examined under the (previously uninvoked) assumption that the good depreciates, and hence that replacement sales must occur if a fixed stock of the good is to be maintained. We find two ways in which the no-depreciation result, that the monopoly will always (at least eventually) produce a stock equal to that produced by a competitive market, may not hold. If the length of the trading period is nonzero, the limiting stock produced by the firm will be lower than the competitive stock, to ensure the profitability of future replacement sales. If the firm is able to constrain its production capacity, it may choose a constraint that always binds in the sense that it will be impossible for the firm to achieve a stock equal to the competitive stock.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 15 (1984)
Issue (Month): 3 (Autumn)
Pages: 336-345

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Handle: RePEc:rje:randje:v:15:y:1984:i:autumn:p:336-345

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Cited by:
  1. Chen, Jiawei & Esteban, Susanna & Shum, Matthew, 2008. "Demand and supply estimation biases due to omission of durability," Journal of Econometrics, Elsevier, vol. 147(2), pages 247-257, December.
  2. Karp, L., 1992. "Depreciation erodes the coase conjecture," Discussion Paper Series In Economics And Econometrics 9210, Economics Division, School of Social Sciences, University of Southampton.
  3. Ramon Caminal, 2011. "Dynamic product diversity," UFAE and IAE Working Papers 891.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Macauley, Molly & Hamilton, Bruce, 1998. "Competition and Car Longevity," Discussion Papers dp-98-20, Resources For the Future.
  5. Xu, Frances Zhiyun, 2011. "Optimal best-price policy," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 628-643, September.
  6. Coury, Tarek & Petkov, Vladimir P., 2008. "Delegation and commitment in durable goods monopolies," Games and Economic Behavior, Elsevier, vol. 63(1), pages 41-55, May.
  7. Evrim Dener, 2007. "Quality Uncertainty and Time Inconsistency in a Durable Good Market," Departmental Working Papers 0707, Southern Methodist University, Department of Economics.
  8. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo Group Munich.
  9. Fethke, Gary & Jagannathan, Raj, 2000. "Why would a durable good monopolist also produce a cost-inefficient nondurable good?," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 793-812, July.
  10. 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.
  11. Pasquale Schiraldi, 2009. "Second-Hand Markets and Collusion byManufacturers of Semidurable Goods," STICERD - Economics of Industry Papers 48, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  12. Luca Bossi & Vladimir Petkov, 2013. "Monopoly, Time Consistency, and Dynamic Demands," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 339-359, September.
  13. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
  14. David Butz, 1988. "Durable Good Monopoly and Best-Price Provisions," UCLA Economics Working Papers 472, UCLA Department of Economics.
  15. Kinokuni, Hiroshi & Ohkawa, Takao & Okamura, Makoto, 2010. ""Planned antiobsolescence" occurs when consumers engage in maintenance," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 441-450, September.
  16. Leonardo Rezende & In-Koo Cho, 2007. "Perishable Durable Goods," 2007 Meeting Papers 453, Society for Economic Dynamics.
  17. John Boyce & Jeffrey Robert Church & Lucia Vojtassak, 2012. "Capacity Constraints in Durable Goods Monopoly: Coase and Hotelling," Working Papers 2012-07, Department of Economics, University of Calgary, revised 08 Aug 2012.
  18. In-Koo Cho, 2007. "Perishable Durable Goods," Economics Working Papers 0077, Institute for Advanced Study, School of Social Science.
  19. Simon Board & Marek Pycia, 2014. "Outside Options and the Failure of the Coase Conjecture," American Economic Review, American Economic Association, vol. 104(2), pages 656-71, February.

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