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Durable Goods with Quality Differentiation

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  • Inderst, Roman

Abstract

What is the optimal strategy of a durable-goods monopolist that can offer goods in different qualities? This Paper provides an answer for the case where the market is segmented into low- and high-income buyers. If the monopolist can change their product and price policy sufficiently rapidly - which reduces their commitment power - we find that the whole market is served immediately. Low-quality goods may be sold below costs. These results are strikingly different to those obtained with non-durable goods and to those obtained if the durable good comes only in a single quality. In an extension we further employ our results to discuss how policies of restricted versioning fare differently with non-durable and durable goods.

Suggested Citation

  • Inderst, Roman, 2003. "Durable Goods with Quality Differentiation," CEPR Discussion Papers 4047, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4047
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    Cited by:

    1. Didier Laussel & Ngo Van Long & Joana Resende, 2021. "Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-period versus intertemporal price discrimination," CIRANO Working Papers 2021s-31, CIRANO.
    2. Stefan Buehler & Nicolas Eschenbaum, 2021. "Dynamic Monopoly Pricing With Multiple Varieties: Trading Up," Papers 2108.07146, arXiv.org, revised Dec 2021.
    3. Beccuti, Juan & Möller, Marc, 2021. "Screening by mode of trade," Games and Economic Behavior, Elsevier, vol. 129(C), pages 400-420.
    4. Eduardo Correia de Souza & Jorge Chami Batista, 2015. "Replacement cycles, income distribution and dynamic price discrimination," Applied Economics, Taylor & Francis Journals, vol. 47(31), pages 3292-3310, July.
    5. Strausz, Roland, 2009. "Monopoly distortions in durability and multi-dimensional quality," Economics Letters, Elsevier, vol. 105(3), pages 333-335, December.
    6. Basak Altan, 2020. "Dynamic Durable Goods Monopoly and Market Power," Games, MDPI, vol. 11(2), pages 1-14, May.
    7. Laussel, Didier & Long, Ngo Van & Resende, Joana, 2020. "Quality and price personalization under customer recognition: A dynamic monopoly model with contrasting equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 114(C).
    8. Brzustowski, Thomas & Georgiadis Harris, Alkis & Szentes, Balázs, 2023. "Smart contracts and the Coase conjecture," LSE Research Online Documents on Economics 117950, London School of Economics and Political Science, LSE Library.
    9. 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.
    10. Jiri Strelicky & Kresimir Zigic, 2013. "Software Upgrades under Monopoly," CERGE-EI Working Papers wp478, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. Didier Laussel & Ngo Van Long, 2021. "Quality Differentiation in Durable Goods Monopoly Always Yields Strictly Positive Profits," CESifo Working Paper Series 9331, CESifo.
    12. Didier Laussel & Ngo Long & Joana Resende, 2022. "Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-Period Versus Intertemporal Discrimination," Dynamic Games and Applications, Springer, vol. 12(2), pages 574-607, June.
    13. Gergely Csorba & Jong‐Hee Hahn, 2006. "Functional Degradation And Asymmetric Network Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 253-268, June.
    14. S. Nageeb Ali & Navin Kartik & Andreas Kleiner, 2022. "Sequential Veto Bargaining with Incomplete Information," Papers 2202.02462, arXiv.org, revised Apr 2023.
    15. Peitz, Martin & Waelbroeck, Patrick, 2006. "Piracy of digital products: A critical review of the theoretical literature," Information Economics and Policy, Elsevier, vol. 18(4), pages 449-476, November.

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    More about this item

    Keywords

    Price discrimination; Screening; Durable-goods monopolist; Coase conjuncture;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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