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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.
    2. Alberto Salvo, 2004. "Inferring Conduct under the Threat of Entry: The Case of the Brazilian Cement Industry," STICERD - Economics of Industry Papers 38, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    3. Ausubel, Lawrence M & Deneckere, Raymond J, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Econometrica, Econometric Society, vol. 57(3), pages 511-531, May.
    4. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    5. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    6. Anat R. Admati & Motty Perry, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 345-364.
    7. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
    8. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
    9. Peter C. Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 205-225.
    10. Yossi Feinberg & Andrzej Skrzypacz, 2005. "Uncertainty about Uncertainty and Delay in Bargaining," Econometrica, Econometric Society, vol. 73(1), pages 69-91, January.
    11. Joel Sobel & Ichiro Takahashi, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 411-426.
    12. Sobel, Joel, 1991. "Durable Goods Monopoly with Entry of New Consumers," Econometrica, Econometric Society, vol. 59(5), pages 1455-1485, September.
    13. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
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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. Weber, Thomas A., 2014. "A continuum of commitment," Economics Letters, Elsevier, vol. 124(1), pages 67-73.

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