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Depreciation erodes the Coase Conjecture

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  • Karp, Larry

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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • Karp, Larry, 1996. "Depreciation erodes the Coase Conjecture," European Economic Review, Elsevier, vol. 40(2), pages 473-490, February.
  • Handle: RePEc:eee:eecrev:v:40:y:1996:i:2:p:473-490
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    1. Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics,in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931 Elsevier.
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    Cited by:

    1. Carlos Osório & Paulo Maçãs & João Leitão, 2001. "A Determinação do Preço dos Bens Duráveis em Duopólio," Working Papers de Gestão, Economia e Marketing (Management, Economics and Marketing Working Papers) 6/2001, Universidade da Beira Interior, Departamento de Gestão e Economia (Portugal).
    2. Itaya, Jun-ichi & Ursprung, Heinrich W., 2016. "Price and death: modeling the death effect in art price formation," Research in Economics, Elsevier, vol. 70(3), pages 431-445.
    3. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    4. Karp, Larry & Lee, In Ho, 2003. "Time-consistent policies," Journal of Economic Theory, Elsevier, vol. 112(2), pages 353-364, October.
    5. Hilli, Amal & Laussel, Didier & Van Long, Ngo, 2013. "Large shareholders, monitoring, and ownership dynamics: Toward pure managerial firms?," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 666-679.
    6. S. Huang & Y. Yang & K. Anderson, 2001. "A Theory of Finitely Durable Goods Monopoly with Used-Goods Market and Transaction Costs," Management Science, INFORMS, vol. 47(11), pages 1515-1532, November.
    7. Salo, Seppo & Tahvonen, Olli, 2001. "Oligopoly equilibria in nonrenewable resource markets," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 671-702, May.
    8. Driskill, Robert A. & Horowitz, Andrew W., 1996. "Durability and strategic trade Are there rents to be captured?," Journal of International Economics, Elsevier, vol. 41(1-2), pages 179-194, August.
    9. Hassan Benchekroun & Ngo Van Long, 2008. "A Class Of Performance-Based Subsidy Rules," The Japanese Economic Review, Japanese Economic Association, vol. 59(4), pages 381-400.
    10. Jun-ichi Itaya & Heinrich Ursprung, 2008. "Price and Death," CESifo Working Paper Series 2213, CESifo Group Munich.
    11. Driskill, Robert, 2001. "Durable goods oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 391-413, March.
    12. Karp, Larry S., 2004. "Global Warming and Hyperbolic Discounting," CUDARE Working Papers 25069, University of California, Berkeley, Department of Agricultural and Resource Economics.
    13. Rowat, Colin, 2007. "Non-linear strategies in a linear quadratic differential game," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3179-3202, October.
    14. Mason, Robin, 2000. "Network externalities and the Coase conjecture," European Economic Review, Elsevier, vol. 44(10), pages 1981-1992, December.
    15. Karp, Larry, 2005. "Global warming and hyperbolic discounting," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 261-282, February.
    16. Karp, Larry & Paul, Thierry, 1998. "Labor adjustment and gradual reform: when is commitment important?," Journal of International Economics, Elsevier, vol. 46(2), pages 333-362, December.
    17. Winston T. H. Koh, 2005. "Household Demand, Network Externality Effects and Intertemporal Price Discrimination," Journal of Economics, Springer, vol. 84(1), pages 49-69, February.
    18. Laussel, Didier & de Montmarin, Maxime & Van Long, Ngo, 2004. "Dynamic duopoly with congestion effects," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 655-677, May.
    19. Driskill, Robert, 2006. "Multiple equilibria in dynamic rational expectations models: A critical review," European Economic Review, Elsevier, vol. 50(1), pages 171-210, January.
    20. Raymond Deneckere & Meng-Yu Liang, 2008. "Imperfect durability and the Coase conjecture," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 1-19.
    21. Karp, Larry S. & Lee, In Ho, 2000. "Time-Consistent Policies," CUDARE Working Papers 6275, University of California, Berkeley, Department of Agricultural and Resource Economics.

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