IDEAS home Printed from https://ideas.repec.org/p/ags/ucbecw/6115.html
   My bibliography  Save this paper

Depreciation erodes the Coase Conjecture

Author

Listed:
  • Karp, Larry S.

Abstract

If a durable good monopolist produces at constant marginal costs and the good depreciates, there exists a family of Strong Markov Perfect Equilibrium (SMPE) with an infinitesimal period of commitment. One member of this family entails instantaneous production of the level of stock produced in a competitive equilibrium; this is consistent with the Coase Conjecture. Other SMPE in the family entail steady state production at a stock level lower than in the competitive equilibrium. In these equilibria, there may be a jump to the steady state, or the steady state may be approached asymptotically. Monopoly profits are positive in these equilibria, and the Coase Conjecture fails. We contrast this result to other papers which use non-Markov strategies to construct multiple equilibria.

Suggested Citation

  • Karp, Larry S., 1995. "Depreciation erodes the Coase Conjecture," CUDARE Working Papers 6115, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:6115
    DOI: 10.22004/ag.econ.6115
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/6115/files/wp950684.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.6115?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931, Elsevier.
    2. 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.
    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. Bond, Eric W. & Samuelson, Larry, 1987. "The Coase conjecture need not hold for durable good monopolies with depreciation," Economics Letters, Elsevier, vol. 24(1), pages 93-97.
    6. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    7. Tsutsui, Shunichi & Mino, Kazuo, 1990. "Nonlinear strategies in dynamic duopolistic competition with sticky prices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 136-161, October.
    8. 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.
    9. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
    10. repec:bla:econom:v:64:y:1997:i:253:p:137-54 is not listed on IDEAS
    11. Dutta, Prajit K & Sundaram, Rangarajan K, 1993. "The Tragedy of the Commons?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(3), pages 413-426, July.
    12. Olsen, Trond E., 1992. "Durable goods monopoly, learning by doing and the Coase conjecture," European Economic Review, Elsevier, vol. 36(1), pages 157-177, January.
    13. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-1478, December.
    14. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    15. repec:bla:econom:v:57:y:1990:i:225:p:29-47 is not listed on IDEAS
    16. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 729-749.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo.
    2. Ngo Long, 2015. "Dynamic Games Between Firms and Infinitely Lived Consumers: A Review of the Literature," Dynamic Games and Applications, Springer, vol. 5(4), pages 467-492, December.
    3. Fethke, Gary & Jagannathan, Raj, 2000. "Why would a durable good monopolist also produce a cost-inefficient nondurable good?," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 793-812, July.
    4. Gregory Goering & Michael Pippenger, 2003. "Dynamic consistency and monopoly," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(2), pages 188-194, June.
    5. Francesco Nava & Pasquale Schiraldi, 2019. "Differentiated Durable Goods Monopoly: A Robust Coase Conjecture," American Economic Review, American Economic Association, vol. 109(5), pages 1930-1968, May.
    6. Gregory Goering, 1994. "Managerial Incentives and Durable Goods Monopoly," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 1(2), pages 271-282.
    7. S. Huang & Y. Yang & K. Anderson, 2001. "A Theory of Finitely Durable Goods Monopoly with Used-Goods Market and Transaction Costs," Management Science, INFORMS, vol. 47(11), pages 1515-1532, November.
    8. Raymond Deneckere & Meng‐Yu Liang, 2008. "Imperfect durability and the Coase conjecture," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 1-19, March.
    9. John Boyce & Jeffrey Robert Church & Lucia Vojtassak, "undated". "Capacity Constraints in Durable Goods Monopoly: Coase and Hotelling," Working Papers 2012-07, Department of Economics, University of Calgary, revised 08 Aug 2012.
    10. Mason, Robin, 2000. "Network externalities and the Coase conjecture," European Economic Review, Elsevier, vol. 44(10), pages 1981-1992, December.
    11. Gerstle, Ari D. & Waldman, Michael, 2016. "Mergers in durable-goods industries: A re-examination of market power and welfare effects," Research in Economics, Elsevier, vol. 70(4), pages 677-692.
    12. Paulo Maçãs Nunes, 2015. "Pricing Strategy In The Context Of Durable Goods Monopoly With Discrete Demand," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 60(204), pages 61-74, January –.
    13. Kumar, Praveen, 2006. "Intertemporal price-quality discrimination and the Coase conjecture," Journal of Mathematical Economics, Elsevier, vol. 42(7-8), pages 896-940, November.
    14. Anton, James J. & Biglaiser, Gary, 2013. "Quality, upgrades and equilibrium in a dynamic monopoly market," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1179-1212.
    15. Buehler, Stefan & Eschenbaum, Nicolas, 2021. "Dynamic Monopoly Pricing With Multiple Varieties: Trading Up," Economics Working Paper Series 2113, University of St. Gallen, School of Economics and Political Science.
    16. Shimomura, Koji, 1998. "A dynamic equilibrium model of durable goods monopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 507-520, January.
    17. Susanna Esteban & Matthew Shum, 2007. "Durable-goods oligopoly with secondary markets: the case of automobiles," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 332-354, June.
    18. Ramesh Sankaranarayanan, 2007. "Innovation and the Durable Goods Monopolist: The Optimality of Frequent New-Version Releases," Marketing Science, INFORMS, vol. 26(6), pages 774-791, 11-12.
    19. Chen, Jiawei & Esteban, Susanna & Shum, Matthew, 2008. "Demand and supply estimation biases due to omission of durability," Journal of Econometrics, Elsevier, vol. 147(2), pages 247-257, December.
    20. Bayer, Ralph-C., 2010. "Intertemporal price discrimination and competition," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 273-293, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:ucbecw:6115. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/dabrkus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.