Habits, Market Power, and Policy Selection
AbstractThis paper examines monopolistic behavior in a framework with habit formation and consumer commitment. We show that time consistent output and pricing policies yield di®erent market outcomes. Policy selection determines the strategic properties of the producer's intra-personal game: current and future quantities are strategic com- plements, while current and future prices are strategic substitutes. In both a simple two-period model and an in¯nite-horizon model, we ¯nd that pricing policies allow the monopolist to attain higher equilibrium pro¯ts.
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Bibliographic InfoPaper provided by University of Miami, Department of Economics in its series Working Papers with number 0702.
Length: 18 pages
Date of creation: 17 May 2007
Date of revision:
Publication status: Forthcoming: Under Review
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More information through EDIRC
Habit persistence; monopoly; time consistency;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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