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Dynamic Monopoly Pricing With Multiple Varieties: Trading Up

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  • Buehler, Stefan
  • Eschenbaum, Nicolas

Abstract

This paper studies dynamic monopoly pricing for a class of settings that includes multiple durable, multiple rental, or a mix of varieties. We show that the driving force behind pricing dynamics is the seller’s incentive to switch consumers—buyers and non-buyers—to higher-valued consumption options by lowering prices (“trading up”). If consumers cannot be traded up from the static optimal allocation, pricing dynamics do not emerge in equilibrium. If consumers can be traded up, pricing dynamics arise until all trading-up opportunities are exhausted. We study the conditions under which pricing dynamics end in finite time and characterize the final prices at which dynamics end.

Suggested Citation

  • Buehler, Stefan & Eschenbaum, Nicolas, 2021. "Dynamic Monopoly Pricing With Multiple Varieties: Trading Up," Economics Working Paper Series 2113, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2021:13
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    References listed on IDEAS

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    More about this item

    Keywords

    price discrimination; inter-temporal pricing; Coasian dynamics;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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