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Damaged Durable Goods, Upgrades, and the Coase Conjecture

Author

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  • Altan Basak

Abstract

This study analyzes a damaged-goods market for a perfectly durable good in an infinite-horizon, discrete-time game. We characterize Markov perfect equilibria of this game under different buyer upgrade possibilities as a function of the common discount factor, the length of the time period between successive price changes, and the quality levels of the goods. We establish that introducing a lower-quality good (or equivalently, damaging a good) works as a commitment device only if consumers holding a durable good cannot reenter the market. When a buyer can upgrade the product, we establish that for all parameter values the Coase conjecture survives.

Suggested Citation

  • Altan Basak, 2018. "Damaged Durable Goods, Upgrades, and the Coase Conjecture," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(4), pages 743-765, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201812)174:4_743:ddguat_2.0.tx_2-e
    DOI: 10.1628/093245618X15160188867245
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    More about this item

    Keywords

    durable goods; monopoly; damaged goods; upgrades; pricing;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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