Product Line Decisions and the Coase Conjecture
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.
Volume (Year): 27 (1996)
Issue (Month): 2 (Summer)
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