Perishable Durable Goods
We examine whether the Coase conjecture (Coase , Stokey , Bulow , Gul, Sonnenschein and Wilson ) is robust against slight ability of commitment of the monopolist not to sell the durable goods to consumers with a reservation value higher than the marginal production cost. We quantify the commitment ability in terms of the speed that the durable goods perish instead of the time interval between the offers. We demonstrate that the slight commitment capability makes a substantial difference by constructing two kinds of reservation price equilibria (Gul, Sonnenschein and Wilson ) that refute the Coase conjecture. In the first equilibrium, the monopolist can credibly delay to make an acceptable offer. Almost all consumers are served, but only after very long delay. As a result, the total gains from trading is arbitrarily small. In the second equilibrium, the monopolist's expected profit can be made close to the static monopoly profit, if the goods perish very slowly. This result differs from (Bond and Samuelson ) where the good is depreciated after being delivered to the consumers, because the difference from the competitive equilibrium outcome does not vanish even if the time between the offers and the rate of decay converge to 0. By using the first kind of reservation price equilibrium as a credible threat against the seller, we can obtain the Folk theorem. Various extensions are discussed.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joel Sobel & Ichiro Takahashi, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 411-426.
- Ausubel, Lawrence M & Deneckere, Raymond J, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Econometrica, Econometric Society, vol. 57(3), pages 511-31, May.
- Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
- Yossi Feinberg & Andrzej Skrzypacz, 2005. "Uncertainty about Uncertainty and Delay in Bargaining," Econometrica, Econometric Society, vol. 73(1), pages 69-91, 01.
- 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.
- 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.
- Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
- Sobel, Joel, 1991. "Durable Goods Monopoly with Entry of New Consumers," Econometrica, Econometric Society, vol. 59(5), pages 1455-85, September.
- Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
- Alberto Salvo, 2004.
"Inferring conduct under the threat of entry: the case of the Brazilian cement industry,"
LSE Research Online Documents on Economics
6728, London School of Economics and Political Science, LSE Library.
- Alberto Salvo, 2004. "Inferring Conduct under the Threat of Entry: The Case of the Brazilian Cement Industry," STICERD - Economics of Industry Papers 38, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
- Peter C. Cramton, 1992.
"Strategic Delay in Bargaining with Two-Sided Uncertainty,"
Review of Economic Studies,
Oxford University Press, vol. 59(1), pages 205-225.
- Peter Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Papers of Peter Cramton 92res, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
- Anat R. Admati & Motty Perry, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 345-364.
When requesting a correction, please mention this item's handle: RePEc:red:sed007:453. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.