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Product Line Decisions and the Coase Conjecture

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  • Kai-Uwe Kuhn
  • A. Jorge Padilla

Abstract

We show that the Coase conjecture does not hold when a durable-goods monopolist also sells nondurable goods that are demand related to the durable. The presence of nondurable complements or substitutes reduces the rate at which the monopolist introduces the durable into the market. The price of the durable does not converge to marginal cost. We analyze the incentives of a monopolist to extend his product line to a durable or a nondurable. Most significantly, the profit from adding a durable to the product line disappears as the time between offers becomes short. We study the effects of entry into markets for nondurables and their implications for merger policy.

Suggested Citation

  • Kai-Uwe Kuhn & A. Jorge Padilla, 1996. "Product Line Decisions and the Coase Conjecture," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 391-414, Summer.
  • Handle: RePEc:rje:randje:v:27:y:1996:i:summer:p:391-414
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    Cited by:

    1. 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.
    2. Chi, Woody Chih-Yi, 1999. "Quality choice and the Coase problem," Economics Letters, Elsevier, vol. 64(1), pages 107-115, July.
    3. Mason, Robin, 2000. "Network externalities and the Coase conjecture," European Economic Review, Elsevier, vol. 44(10), pages 1981-1992, December.
    4. Ding, Yucheng, 2014. "Why Branded Firm may Benefit from Counterfeit Competition," MPRA Paper 52933, University Library of Munich, Germany.
    5. Sreekumar R. Bhaskaran & Stephen M. Gilbert, 2005. "Selling and Leasing Strategies for Durable Goods with Complementary Products," Management Science, INFORMS, vol. 51(8), pages 1278-1290, August.
    6. Cabral, Luis M. B. & Salant, David J. & Woroch, Glenn A., 1999. "Monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 199-214, February.
    7. Paulo Maçãs Nunes, 2015. "Pricing Strategy In The Context Of Durable Goods Monopoly With Discrete Demand," Economic Annals, Faculty of Economics, University of Belgrade, vol. 60(204), pages 61-74, January –.
    8. Kumar, Praveen, 2006. "Intertemporal price-quality discrimination and the Coase conjecture," Journal of Mathematical Economics, Elsevier, vol. 42(7-8), pages 896-940, November.
    9. Poddar, Sougata, 2004. "Strategic choice in durable goods market when firms move simultaneously," Research in Economics, Elsevier, vol. 58(2), pages 175-186, June.
    10. Ngo Long, 2015. "Dynamic Games Between Firms and Infinitely Lived Consumers: A Review of the Literature," Dynamic Games and Applications, Springer, vol. 5(4), pages 467-492, December.
    11. Fethke, Gary & Jagannathan, Raj, 2000. "Why would a durable good monopolist also produce a cost-inefficient nondurable good?," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 793-812, July.
    12. Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, vol. 47(6), pages 1011-1036, December.
    13. Goering, Gregory E., 2007. "Durability choice with differentiated products," Research in Economics, Elsevier, vol. 61(2), pages 105-112, June.

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