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Intertemporal Price Discrimination: Dynamic Arrivals and Changing Values

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  • Daniel F. Garrett

Abstract

We study the profit-maximizing price path of a monopolist selling a durable good to buyers who arrive over time and whose values for the good evolve stochastically. The setting is completely stationary with an infinite horizon. Contrary to the case with constant values, optimal prices fluctuate with time. We argue that consumers' randomly changing values offer an explanation for temporary price reductions that are often observed in practice.

Suggested Citation

  • Daniel F. Garrett, 2016. "Intertemporal Price Discrimination: Dynamic Arrivals and Changing Values," American Economic Review, American Economic Association, vol. 106(11), pages 3275-3299, November.
    • Handle: RePEc:aea:aecrev:v:106:y:2016:i:11:p:3275-99
    Note: DOI: 10.1257/aer.20130564
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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