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Perishable Durable Goods

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  • In-Koo Cho

    (Department of Economics, University of Illinois)

Abstract

We examine whether the Coase conjecture [7, 14, 4, 10] is robust against slight ability of commitment of the monopolist not to sell the durable goods to consumers. We quantify the commitment ability in terms of the speed that the durable goods perish, while keeping the time between the offers small. We demonstrate that the slight commitment capability makes a substantial difference by constructing two kinds of reservation price equilibria [10] that refute the Coase conjecture. In the first equilibrium, the monopolist can credibly delay to make an acceptable offer. All consumers are served, but only after extremely long delay. Most of gains from trading is discounted away, and the resulting outcome is extremely inefficient. In the second equilibrium, the monopolist's expected profit can be made close to the static monopoly profit, if the goods perish very slowly. By focusing on the reservation price equilibria, we rigorously eliminate any source of reputational effect. In fact, by using the first kind of reservation price equilibrium as a credible threat against the seller, we can construct many other reputational equilibria [2] to obtain the Folk theorem. Various extensions and applications are discussed.

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  • In-Koo Cho, 2007. "Perishable Durable Goods," Economics Working Papers 0077, Institute for Advanced Study, School of Social Science.
  • Handle: RePEc:ads:wpaper:0077
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    1. Eric W. Bond & Larry Samuelson, 1984. "Durable Good Monopolies with Rational Expectations and Replacement Sales," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 336-345, Autumn.
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    Cited by:

    1. Johannes Hörner & Larry Samuelson, 2011. "Managing Strategic Buyers," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 379-425.
    2. Onur, Ilke & Bruwer, Johan & Lockshin, Larry, 2020. "Reducing information asymmetry in the auctioning of non-perishable experience goods: The case of online wine auctions," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    3. Thomas A. Weber, 2016. "A robust resolution of Newcomb’s paradox," Theory and Decision, Springer, vol. 81(3), pages 339-356, September.
    4. Weber, Thomas A., 2014. "A continuum of commitment," Economics Letters, Elsevier, vol. 124(1), pages 67-73.

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