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Commitment Power in a Non-Stationary Durable-Good Market

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  • Usategui Díaz de Otalora, José María
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    Abstract

    This paper derives and evaluates the decisions of a durable good monopolist in a context where demand for the services of the durable good changes over time. It shows that, if the size of the market decreases over time, social welfare may be higher when the monopolist has commitment ability than when she has not. Moreover, the equilibrium under a monopolist seller with commitment power may Pareto-dominate the equilibrium under a monopolist seller without commitment ability. The work also proves that these results obtain if there is uncertainty about future demand for the services of the durable good.

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    File URL: https://addi.ehu.es/bitstream/10810/5763/1/2001.08.pdf
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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 2001-08.

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    Date of creation: May 2001
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    Handle: RePEc:ehu:biltok:200108

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    Postal: Avda. Lehendakari, Aguirre, 83, 48015 Bilbao
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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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    Related research

    Keywords: commitment ability; demand variations; monopoly; durable goods;

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    1. Chi, Woody Chih-Yi, 1999. "Quality choice and the Coase problem," Economics Letters, Elsevier, vol. 64(1), pages 107-115, July.
    2. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
    3. Bulow, Jeremy, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 729-49, November.
    4. Malueg, David A. & Solow, John L., 1987. "On requiring the durable goods monopolist to sell," Economics Letters, Elsevier, vol. 25(3), pages 283-288.
    5. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
    6. Butz, David A, 1990. "Durable-Good Monopoly and Best-Price Provisions," American Economic Review, American Economic Association, vol. 80(5), pages 1062-76, December.
    7. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
    8. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
    9. Jones, Robert A & Ostroy, Joseph M, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 13-32, January.
    10. 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.
    11. Bond, Eric W & Samuelson, Larry, 1987. "Durable Goods, Market Structure and the Incentives to Innovate," Economica, London School of Economics and Political Science, vol. 54(213), pages 57-67, February.
    12. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    13. Saracho, Ana I., 1997. "The diffusion of a durable embodied capital innovation," Economics Letters, Elsevier, vol. 54(1), pages 45-50, January.
    14. Usategui, JoseM., 1990. "Uncertain irreversibility, information, and transformation costs," Journal of Environmental Economics and Management, Elsevier, vol. 19(1), pages 73-85, July.
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