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Durable Goods, Coasian Dynamics, and Uncertainty: Theory and Experiments

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  • Timothy N. Cason
  • Tridib Sharma

Abstract

This paper presents a model in which a durable goods monopolist sells a product to two buyers. Each buyer is privately informed about his own valuation. Thus all players are imperfectly informed about market demand. We study the monopolist's pricing behavior as players' uncertainty regarding demand vanishes in the limit. In the limit, players are perfectly informed about the downward-sloping demand. We show that in all games belonging to a fixed and open neighborhood of the limit game there exists a generically unique equilibrium outcome that exhibits Coasian dynamics and in which play lasts for at most two periods. A laboratory experiment shows that, consistent with our theory, outcomes in the Certain and Uncertain Demand treatments are the same. Median opening prices in both treatments are roughly at the level predicted and considerably below the monopoly price. Consistent with Coasian dynamics, these prices are lower for higher discount factors. Demand withholding, however, leads to more trading periods than predicted.

Suggested Citation

  • Timothy N. Cason & Tridib Sharma, 2001. "Durable Goods, Coasian Dynamics, and Uncertainty: Theory and Experiments," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1311-1354, December.
  • Handle: RePEc:ucp:jpolec:v:109:y:2001:i:6:p:1311-1354
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    References listed on IDEAS

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    1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, March.
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    Cited by:

    1. van Damme, E.E.C. & Larouche, P. & Müller, W., 2006. "Abuse of a Dominant Position : Cases and Experiments," Discussion Paper 2006-020, Tilburg University, Tilburg Law and Economic Center.
    2. José Luis Lima R. & Javier Nuñez E., 2004. "Experimental Analysis of the Reputational Incentives in a Self Regulated Organization," Econometric Society 2004 Latin American Meetings 194, Econometric Society.
    3. Bayer, Ralph-C., 2010. "Intertemporal price discrimination and competition," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 273-293, February.
    4. repec:gam:jeners:v:11:y:2018:i:2:p:458-:d:132747 is not listed on IDEAS
    5. repec:bla:ecorec:v:93:y:2017:i:302:p:379-394 is not listed on IDEAS
    6. repec:gam:jgames:v:9:y:2018:i:1:p:10-:d:132752 is not listed on IDEAS
    7. Bilancini, Ennio & Boncinelli, Leonardo, 2016. "Dynamic adverse selection and the supply size," European Economic Review, Elsevier, vol. 83(C), pages 233-242.
    8. repec:elg:eechap:14176_3 is not listed on IDEAS
    9. Claudia M. Landeo, 2018. "Exclusionary vertical restraints and antitrust: experimental law and economics contributions," Chapters,in: Research Handbook on Behavioral Law and Economics, chapter 3, pages 75-100 Edward Elgar Publishing.
    10. Steven M. Shugan, 2002. "Editorial: Marketing Science, Models, Monopoly Models, and Why We Need Them," Marketing Science, INFORMS, vol. 21(3), pages 223-228.
    11. Song, Yanan & Zhao, Xiaobo, 2016. "Strategic customer behavior facing possible stockout: An experimental study," International Journal of Production Economics, Elsevier, vol. 180(C), pages 57-67.

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