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Choice of Product Variety for the Durable Goods Monopolist

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  • Saracho de la Torre, Ana Isabel
  • Casado Izaga, Francisco Javier

Abstract

This paper analyzes the strategic choice of variety by a monopolist seller of a durable good as a means to mitigate his commitment problem. The monopolist chooses his product variety with a goal of ensuring that a strong reduction in future prices will not be profitable because it allows the firm to attract few additional consumers. The main result that emerges from considering product variety as an endogenous variable is that, contrary to the case in which it is exogenously determined, social welfare is always higher when the monopolist cannot commit that when he can.

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Bibliographic Info

Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 1999-02.

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Date of creation: Jan 1999
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Handle: RePEc:ehu:biltok:199902

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Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: durable goods monopolist; commitment; product variety;

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  1. Malueg, David A. & Solow, John L., 1987. "On requiring the durable goods monopolist to sell," Economics Letters, Elsevier, vol. 25(3), pages 283-288.
  2. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Malueg, David A & Solow, John L, 1989. "A Note on Welfare in the Durable-Goods Monopoly," Economica, London School of Economics and Political Science, vol. 56(224), pages 523-27, November.
  4. Butz, David A, 1990. "Durable-Good Monopoly and Best-Price Provisions," American Economic Review, American Economic Association, vol. 80(5), pages 1062-76, December.
  5. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
  6. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
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