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Habits, Market Power, and Policy Selection

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Author Info
Luca Bossi () (Department of Economics, University of Miami)
Vladimir Petkov () (School of Economics and Finance, Victoria University of Wellington)

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Abstract

This 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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File URL: http://moya.bus.miami.edu/~lbossi/mhpol_web.pdf
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Publisher Info
Paper provided by University of Miami, Department of Economics in its series Working Papers with number 0702.

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Length: 18 pages
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Handle: RePEc:mia:wpaper:0702

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Related research
Keywords: Habit persistence; monopoly; time consistency;

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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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter. [Downloadable!] (restricted)
  2. Paolo Dudine & Igal Hendel & Alessandro Lizzeri, 2006. "Storable Good Monopoly: The Role of Commitment," American Economic Review, American Economic Association, vol. 96(5), pages 1706-1719, December. [Downloadable!]
  3. Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
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  4. Driskill, Robert & McCafferty, Stephen, 2001. "Monopoly and Oligopoly Provision of Addictive Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 43-72, February.
  5. Karp, L., 1992. "Monopoly Power Can be Disadvantageous in the Extraction of a Durable Nonrenewable Resource," Discussion Paper Series In Economics And Econometrics 9209, Economics Division, School of Social Sciences, University of Southampton.
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  6. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju. [Downloadable!] (restricted)
  7. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  8. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
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  9. Benabou, R. & Tirole, J., 2001. "Willpower and Personal Rules," Papers 216, Princeton, Woodrow Wilson School - Public and International Affairs.
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  10. Messinis, G., 1998. "Habit Formation and the Theory of Addiction," Department of Economics - Working Papers Series 635, The University of Melbourne.
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luca Bossi, . "Per Unit Versus As Valorem Taxes Under Dynamic Monopoly," Working Papers 0703, University of Miami, Department of Economics. [Downloadable!]
  2. Luca Bossi & Pedro Gomis-Porqueras & David L. Kelly, . "Optimal Second Best Taxation of Addictive Goods," Working Papers 0708, University of Miami, Department of Economics. [Downloadable!]
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