Intertemporal Price-Quality Discrimination and the Coase Conjecture

Posted: 26 Oct 2006

See all articles by Praveen Kumar

Praveen Kumar

University of Houston - Department of Finance

Multiple version iconThere are 2 versions of this paper

Abstract

We examine time-consistent intertemporal price-quality discrimination by a durable goods monopolist, when there are a continuum of buyer demand-intensities with respect to product quality, and it is profitable for the monopolist to trade with the marginal buyer-type (i.e., the gap case). We show that along every subgame perfect equilibrium path, with probability 1, prices and qualities decline over time, and the market is completely and monotonically depleted according to buyer-type in a finite number of offers. But, unlike the fixed quality literature, the monopolist may randomize over price-quality offers along the equilibrium path. We also show that the Coase conjecture continues to be valid here, but in a form that is significantly different from the usual formulation. In the limit, as the time between offers evaporates, the monopolist makes a continuum of offers and perfectly screens the market. However, he effectively cannot price-discriminate, because the equilibrium profits converge to the complete pooling profits that would be made if the entire market had the marginal buyer-type's valuatio

Keywords: Durable goods monopoly, Quality discrimination, Coase conjecture

JEL Classification: D40, D42, C72

Suggested Citation

Kumar, Praveen, Intertemporal Price-Quality Discrimination and the Coase Conjecture. Journal of Mathematical Economics, Vol. 42, pp. 896-940, 2006, Available at SSRN: https://ssrn.com/abstract=940450

Praveen Kumar (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4770 (Phone)
713-743-4789 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
520
PlumX Metrics