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Non-Stationary Demand in a Durable Goods Monopoly

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  • Usategui Díaz de Otalora, José María
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    Abstract

    In a context where demand for the services of a durable good changes over time, and this change may be uncertain, the paper shows that social welfare may be higher when the monopolist seller can commit to any future price level she wishes than when she cannot. Moreover, the equilibrium under a monopolist with commitment power may Pareto-dominate the equilibrium under a monopolist without commitment ability. These results affect the desired regulation of a durable goods monopolist in this context.

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    File URL: https://addi.ehu.es/bitstream/10810/6702/1/wp2006-05.pdf
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    Bibliographic Info

    Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2006-05.

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    Date of creation: Jan 2006
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    Handle: RePEc:ehu:dfaeii:200605

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    Postal: Dpto. de Fundamentos del Análisis Económico II, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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    Keywords: commitment; demand variations; regulation; durable goods;

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    1. Sam Bucovetsky & John Chilton, 1986. "Concurrent Renting and Selling in a Durable-Goods Monopoly under Threat of Entry," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 261-275, Summer.
    2. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
    3. Saracho, Ana I., 1997. "The diffusion of a durable embodied capital innovation," Economics Letters, Elsevier, vol. 54(1), pages 45-50, January.
    4. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    5. Bhatt, Swati, 1989. "Demand uncertainty in a durable goods monopoly," International Journal of Industrial Organization, Elsevier, vol. 7(3), pages 341-355.
    6. Chi, Woody Chih-Yi, 1999. "Quality choice and the Coase problem," Economics Letters, Elsevier, vol. 64(1), pages 107-115, July.
    7. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
    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. 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.
    10. Jones, Robert A & Ostroy, Joseph M, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 13-32, January.
    11. Malueg, David A. & Solow, John L., 1987. "On requiring the durable goods monopolist to sell," Economics Letters, Elsevier, vol. 25(3), pages 283-288.
    12. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
    13. Bulow, Jeremy, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 729-49, November.
    14. Butz, David A, 1990. "Durable-Good Monopoly and Best-Price Provisions," American Economic Review, American Economic Association, vol. 80(5), pages 1062-76, December.
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