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Imperfect durability and the Coase conjecture

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  • Raymond Deneckere
  • Meng-Yu Liang

Abstract

This article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time. We show that there exist three types of stationary equilibria: a Coase Conjecture equilibrium, a monopoly equilibrium, and a reputational equilibrium. When the depreciation rate is low, the Coase Conjecture equilibrium is the unique equilibrium. For intermediate values of the depreciation rate, all three equilibrium types coexist. When the depreciation rate is high, the monopoly equilibrium is the unique equilibrium. Consequently, when selling a good of sufficiently low durability, the monopolist does not lose any of her monopoly power. Furthermore, the steady-state output in the reputational equilibrium falls below the monopoly quantity. Hence, in durable goods markets, welfare losses due to monopoly power may be larger than in markets for perishables. Copyright (c)2008, RAND.

Suggested Citation

  • Raymond Deneckere & Meng-Yu Liang, 2008. "Imperfect durability and the Coase conjecture," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 1-19.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:1-19
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    References listed on IDEAS

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    Cited by:

    1. Tian Xia & Richard Sexton, 2010. "Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(4), pages 333-349, June.

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