Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model
AbstractWe examine an infinite horizon model of quality growth in a durable goods monopoly market. The monopolist generates new quality improvements over time and can sell any available qualities, in any desired bundles, at each point in time. Consumers are identical and for a quality improvement to have value the buyer must possess previous qualities--goods are upgrades. We show that subgame perfect equilibrium payoffs for the seller range from capturing the full social surplus all the way down to capturing only the current flow value of each good and that each of these payoffs is realized in a Markov perfect equilibrium that follows the socially efficient allocation path. This is true for all discount factors. We also show that inefficient equilibria exist for rates of innovation above a threshold.
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Bibliographic InfoPaper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000000056.
Date of creation: 04 May 2010
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Other versions of this item:
- James J. Anton & Gary Biglaiser, 2010. "Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model," Working Papers 10-36, Duke University, Department of Economics.
- NEP-ALL-2010-05-15 (All new papers)
- NEP-COM-2010-05-15 (Industrial Competition)
- NEP-IND-2010-05-15 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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