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The micro-foundations of intertemporal price discrimination

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  • Winston Koh

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Abstract

This paper investigates the optimality of intertemporal price discrimination for a durable-good monopoly in a model where infinitely-lived households face an intertemporal budget constraint, and consume both durable goods and non-durable goods. We prove that the optimal price of the durable good is not constant, and may decrease or increase over time. Some households may choose to purchase the durable good at a later date, and pay lower or higher prices, since the gain in discounted utility of consuming more of the non-durable good more than compensates for the loss in utility from delaying the consumption of the durable good. Copyright Springer-Verlag Berlin/Heidelberg 2006

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File URL: http://hdl.handle.net/10.1007/s00199-005-0599-4
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 27 (2006)
Issue (Month): 2 (January)
Pages: 393-410

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Handle: RePEc:spr:joecth:v:27:y:2006:i:2:p:393-410

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Related research

Keywords: Intertemporal price discrimination; Durable good monopoly; Optimal pricing strategy; Household demand.;

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References

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  1. Aldo Rustichini & Anne P. Villamil, 2000. "Intertemporal pricing in laboratory posted offer markets with differential information," Economic Theory, Springer, vol. 16(3), pages 613-637.
  2. Ault, Richard W, et al, 2000. "Rebates, Inventories, and Intertemporal Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 38(4), pages 570-78, October.
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Citations

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Cited by:
  1. Tian Xia & Richard Sexton, 2010. "Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination," Review of Industrial Organization, Springer, vol. 36(4), pages 333-349, June.
  2. Iqbal Syed & Daniel Melser, 2008. "Prices over the Product Life Cycle: An Empirical Analysis," Discussion Papers 2008-25, School of Economics, The University of New South Wales.
  3. Hikmet Gunay, 2013. "Waiting For Signalling Quality," ISER Discussion Paper 0877, Institute of Social and Economic Research, Osaka University.
  4. Souza, Eduardo Correia de & Batista, Jorge Chami, 2014. "Replacement Cycles, Income Distribution, and Dynamic Price Discrimination," Insper Working Papers wpe_331, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  5. Lou, Weifang & Prentice, David & Yin, Xiangkang, 2012. "What difference does dynamics make? The case of digital cameras," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 30-40.
  6. Melser, Daniel & Syed, Iqbal, 2007. "Life Cycle Pricing and the Measurement of Inflation," MPRA Paper 16722, University Library of Munich, Germany, revised 07 Jul 2008.
  7. Eduardo Correia de Souza & Jorge Chami Batista, 2007. "Replacement Cycles, Income Distribution, And Dynamic Price Discrimination," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 019, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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