Dynamic Games Between Firms and Infinitely Lived Consumers: A Review of the Literature

We review a class of models in industrial organization theory, in which consumers’ foresight takes an important role. As Coase (J Law Econ 15:143–149, 1972 ) makes clear, the foresight of consumers may restrain the power of monopolists and oligopolists, especially when the goods are durable and the firms lack the ability to commit to future prices and/or outputs. This important insight clearly has significant implications for antitrust policies. However, the extent to which the powers of firms are curtailed depends on a host of factors which are explored in a number of important contributions. These factors include the length of time between two consecutive offers, the rate of depreciation of the durable goods, the product lines offered by firms producing the durable goods, the nature of network externalities in the primary market and the aftermarkets, the ability of firms to rely on reputational effects, and so on. This paper also reviews issues that are closely related to product durability, such as consumption capital in the case addictive goods, anticipation of future network congestions, and sales of assets such as shares of a firm’s subsidiaries, or shares of a majority shareholder who has an influence on managers. Copyright Springer Science+Business Media New York 2015