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Coase’s conjecture in finite horizon

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  • Michal Ostatnicky

Abstract

In this paper Coase's Conjecture is analyzed in a finite-horizon formulation. In addition to utility discounting models decreasing-willingness-to-pay models are analyzed. We find that in contrast to Coase's Conjecture a monopolist may extract full monopoly profit in the finite-horizon problem under certain conditions; in fact, the monopolist does not have any reason to attract traders and waits until they come and trade. However, including utility discounting or decreasing-willingness-to-pay on the purchasers' side the monopolist's profit may dramatically decrease. The monopolist tries to clear trades as soon as possible, which makes him sacrifice a part of his one-shot monopoly profit to attract traders to buy.

Suggested Citation

  • Michal Ostatnicky, 2004. "Coase’s conjecture in finite horizon," CERGE-EI Working Papers wp241, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp241
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp241.pdf
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    References listed on IDEAS

    as
    1. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
    2. 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.
    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. 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.
    5. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 317-355.
    6. Albert S. Kyle & Jean-Luc Vila, 1991. "Noise Trading and Takeovers," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 54-71, Spring.
    7. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
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    More about this item

    Keywords

    Coase's conjecture; Monopoly; Discounting; Decreasing willingness to pay.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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