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Depreciation erodes the coase conjecture

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  • Karp, L.

Abstract

If a durable good monopolist produces at constant marginal costs and the good depreciates, there exists a family of Strong Markov Perfect Equilibrium (SMPE) with an infinitesimal period of commitment. One member of this family entails instantaneous production of the level of stock produced in a competitive equilibrium; this is consistent with the Coase Conjecture. Other SMPE in the family entail steady state production at a stock level lower than in the competitive equilibrium. In these equilibria, there may be a jump to the steady state, or the steady state may be approached asymptotically. Monopoly profits are postive in these equilibria, and the Coase Conjecture fails. We contrast this result to other papers which use non-Markov strategies to construct multiple equilibria.

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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9210.

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Date of creation: 01 Jan 1992
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Handle: RePEc:stn:sotoec:9210

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  1. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, Elsevier, vol. 39(1), pages 155-190, June.
  2. Malueg, David A & Solow, John L, 1990. "Monopoly Production of Durable Exhaustible Resources," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 57(225), pages 29-47, February.
  3. Bond, Eric W. & Samuelson, Larry, 1987. "The Coase conjecture need not hold for durable good monopolies with depreciation," Economics Letters, Elsevier, Elsevier, vol. 24(1), pages 93-97.
  4. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
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  8. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  9. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(6), pages 1459-78, December.
  10. Eric W. Bond & Larry Samuelson, 1984. "Durable Good Monopolies with Rational Expectations and Replacement Sales," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 336-345, Autumn.
  11. Driskill, Robert, 1997. "Durable-Goods Monopoly, Increasing Marginal Cost and Depreciation," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 64(253), pages 137-54, February.
  12. Olsen, Trond E., 1992. "Durable goods monopoly, learning by doing and the Coase conjecture," European Economic Review, Elsevier, Elsevier, vol. 36(1), pages 157-177, January.
  13. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(2), pages 314-32, April.
  14. Tsutsui, Shunichi & Mino, Kazuo, 1990. "Nonlinear strategies in dynamic duopolistic competition with sticky prices," Journal of Economic Theory, Elsevier, Elsevier, vol. 52(1), pages 136-161, October.
  15. Dutta, Prajit K & Sundaram, Rangarajan K, 1993. "The Tragedy of the Commons?," Economic Theory, Springer, Springer, vol. 3(3), pages 413-26, July.
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