Differentiated Durable Goods Monopoly: A Robust Coase Conjecture

49 Pages Posted: 14 Feb 2018

See all articles by Francesco Nava

Francesco Nava

London School of Economics & Political Science (LSE)

Pasquale Schiraldi

London School of Economics & Political Science (LSE) - Department of Economics

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Date Written: February 2018

Abstract

The paper analyzes a durable good monopoly problem in which multiple varieties can be produced and sold. A robust Coase conjecture establishes that the market eventually clears, that profits exceed static optimal market-clearing profits, and that profits converge to this lower bound in all stationary equilibria when prices can be revised instantaneously. In contrast to the one-variety case though, equilibrium pricing is neither efficient nor minimal (that is, equal to the maximum between marginal cost an the minimal value). Conclusions apply even when products can be scrapped albeit at possibly smaller mark-ups. If so, a novel motive for selling high cost products naturally emerges. Moreover, with positive marginal costs, cross-subsidization arises as a result of equilibrium pricing. The online appendix delivers insights on product design.

Suggested Citation

Nava, Francesco and Schiraldi, Pasquale, Differentiated Durable Goods Monopoly: A Robust Coase Conjecture (February 2018). CEPR Discussion Paper No. DP12708, Available at SSRN: https://ssrn.com/abstract=3122370

Francesco Nava (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Pasquale Schiraldi

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://sites.google.com/view/schiraldi-pasquale/home

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