Quality, Upgrades, and (the Loss of) Market Power 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 find that the upgrade structure, quality growth, and the fact that consumers are always in the market can lead to an almost complete loss in market power for the seller even though all consumers are identical. This is true for all discount factors. 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. We also find that equilibria may be inefficient.
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Bibliographic InfoPaper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000169.
Date of creation: 12 Mar 2009
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Other versions of this item:
- James J Anton & Gary Biglaiser, 2008. "Quality, Upgrades, and (the Loss of) Market Power in a Dynamic Monopoly Model," Levine's Working Paper Archive 122247000000002167, David K. Levine.
- James J. Anton & Gary Biglaiser, 2010. "Quality, Upgrades, and (the Loss of) Market Power in a Dynamic Monopoly Model," Working Papers 10-13, Duke University, Department of Economics.
- James J. Anton & Gary Biglaiser, 2007. "Quality Upgrades and the (loss) of Market Power in a Dynamic Monopoly Model," Working Papers 18, Portuguese Competition Authority.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-14 (All new papers)
- NEP-COM-2009-03-14 (Industrial Competition)
- NEP-MIC-2009-03-14 (Microeconomics)
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