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Depreciation erodes the Coase Conjecture

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  • 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
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