Damaged Durable Goods
AbstractI analyze a durable-goods monopolistÕs incentives to introduce a damaged good (a stripped down version of the original good) in an infinite-horizon framework. The damaged good helps the monopolist to mitigate the Coasian time-inconsistency problem. However, it may lead to a welfare reduction: low-valuation buyers are induced to purchase the low-quality damaged good early rather than buy the high-quality original good later, and when the players are patient the surplus loss from quality reduction outweighs the gain from earlier consumptions. This welfare result contrasts with the previous literature based on a static framework.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 37 (2006)
Issue (Month): 1 (Spring)
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Web page: http://www.rje.org
Other versions of this item:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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