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Commitment Power in a Non-Stationary Durable-Good Market

  • Usategui Díaz de Otalora, José María
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    This paper derives and evaluates the decisions of a durable good monopolist in a context where demand for the services of the durable good changes over time. It shows that, if the size of the market decreases over time, social welfare may be higher when the monopolist has commitment ability than when she has not. Moreover, the equilibrium under a monopolist seller with commitment power may Pareto-dominate the equilibrium under a monopolist seller without commitment ability. The work also proves that these results obtain if there is uncertainty about future demand for the services of the durable good.

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    Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 2001-08.

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    Date of creation: May 2001
    Date of revision:
    Handle: RePEc:ehu:biltok:200108
    Contact details of provider: Postal: Avda. Lehendakari, Aguirre, 83, 48015 Bilbao
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    Order Information: Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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    1. repec:bla:restud:v:51:y:1984:i:1:p:13-32 is not listed on IDEAS
    2. 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.
    3. Butz, David A, 1990. "Durable-Good Monopoly and Best-Price Provisions," American Economic Review, American Economic Association, vol. 80(5), pages 1062-76, December.
    4. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    5. Chi, Woody Chih-Yi, 1999. "Quality choice and the Coase problem," Economics Letters, Elsevier, vol. 64(1), pages 107-115, July.
    6. Bond, Eric W & Samuelson, Larry, 1987. "Durable Goods, Market Structure and the Incentives to Innovate," Economica, London School of Economics and Political Science, vol. 54(213), pages 57-67, February.
    7. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
    8. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
    9. Malueg, David A. & Solow, John L., 1987. "On requiring the durable goods monopolist to sell," Economics Letters, Elsevier, vol. 25(3), pages 283-288.
    10. Saracho, Ana I., 1997. "The diffusion of a durable embodied capital innovation," Economics Letters, Elsevier, vol. 54(1), pages 45-50, January.
    11. Malueg, David A & Solow, John L, 1989. "A Note on Welfare in the Durable-Goods Monopoly," Economica, London School of Economics and Political Science, vol. 56(224), pages 523-27, November.
    12. repec:tpr:qjecon:v:101:y:1986:i:4:p:729-49 is not listed on IDEAS
    13. Usategui, JoseM., 1990. "Uncertain irreversibility, information, and transformation costs," Journal of Environmental Economics and Management, Elsevier, vol. 19(1), pages 73-85, July.
    14. Robert A. Jones & Joseph M. Ostroy, 1979. "Flexibilty and Uncertainty," UCLA Economics Working Papers 163, UCLA Department of Economics.
    15. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
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