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Uncertain Commitment Power in a Durable Good Monopoly

Author

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  • Seres Gyula

    (37580 N.1 Institute for Health and Institute for Digital Medicine, National University of Singapore , Singapore, Singapore)

Abstract

This paper considers dynamic pricing strategies in a durable good monopoly model with uncertain commitment power to set price paths. The type of monopolist is private information of the firm and not observable to consumers. If commitment to future prices is not possible, the initial price is high in equilibrium, but the firm falls prey to the Coase conjecture later to capture the residual demand. The relative price cut is increasing in the probability of commitment as buyers anticipate that a steady price is likely and purchase early. Pooling in prices may occur for perpetuity if commitment is sufficiently weak.

Suggested Citation

  • Seres Gyula, 2024. "Uncertain Commitment Power in a Durable Good Monopoly," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(2), pages 599-619.
    • Handle: RePEc:bpj:bejtec:v:24:y:2024:i:2:p:599-619:n:1010
    DOI: 10.1515/bejte-2024-0030
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    Keywords

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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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