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Intertemporal price–quality discrimination and the Coase conjecture by Praveen Kumar is a Economics, Econometrics and Finance article available to read on EtoBox.

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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 valuation.

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Author

Praveen Kumar

Publisher

Elsevier Science; Elsevier ; Elsevier BV (ISSN 0304-4068)

Published

2006

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)