agents with principles the control of labor in the dutch east india company 1700 to 1796 principal agent problems plagued early modern corporations the existing literature emphasizes the potential benefits provided by private trade in aligning the interests of company agents to those

name your own price at priceline com strategic bidding and lockout periods a buyer suggests prices to n sellers in a time period and buys from the seller who accepts the bid first the number of bidding rounds is determined by how frequently the buyer can make an offer we show that with no limit on the frequency and without discounting the price path is either kept flat initially with large jumps at the end or increasing steadily over time which class of path occurs in equilibrium depends on the buyer s trade off between committing to a price ceiling versus finely screening the sellers costs with discounting limiting the number of rounds mitigates the delay caused by the reluctance to raise bids in the first class of equilibrium and therefore can benefit the buyer this result suggests why in reality bargaining parties often take measures to make their offers rigid and consequently force themselves to make fewer offers copyright oxford university press

durable goods and product obsolescence the issue of product obsolescence is addressed by examining the optimal sales strategy of a monopolist firm that may introduce an improved version of its current product consumers expectations of a forthcoming product lowers the price that they are willing to pay for the current product because of its loss in value due to obsolescence the new product is characterized by consumers increased willingness to pay and by its competitive interaction with the old product these characteristics affect the tradeoff that the firm makes between the cost of waiting for new product sales versus the cost of cannibalizing these sales we analyze the effect of these characteristics of the new product on the firm s optimal sales strategy we consider the various policy measures available to the firm including limiting initial sales in order to lower cannibalization of the new product buying back the earlier version of the product in order to generate greater demand for the new product and announcements of future product introductions we find that for modest levels of product improvement the firm s optimal policy is to phase out sales of the old product while for large improvements a buy back policy is more profitable lastly we find that the firm is better off if it informs consumers whether a new product is forthcoming

intertemporal pricing and price discrimination a semiparametric hedonic analysis of the personal computer market we apply a smooth coefficient semiparametric model to a unique high frequency data set to examine the intertemporal pricing of personal computers furthermore we test whether firms charge differential component prices for their top performance personal computers and whether premium firms charge both a premium for all their computers and a premium for their top performance ones we find nonlinear effects in the pricing of personal computer components we also find that firms in general do not charge differential prices for the components of their top performance computers in addition high quality firms charge higher premia only for their most advanced products copyright 2006 john wiley sons ltd

entry order and pricing over the product cycle the transition from the 486 to the pentium processor abstract using a high frequency data set of advertized prices of personal computers we find that prices of pentium computers of late entrants into this market segment are higher than the contemporaneous prices of their competitors this is true even among firms which have the same price premium for their 486 computers but is more pronounced for high quality firms over time the difference in the pentium computer prices between the early and late entrants declines to the level of the price gap for their 486 computers in contrast the entry prices of the late entrants are lower than the entry prices of the early entrants these results suggest that entry prices of firms are set to extract short run rents from consumers who have a higher willingness to pay for their brand they also suggest a rapidly declining price premium for quality over the product cycle we develop a stylized two period durable goods duopoly model that formalizes this intuition and which produces results consistent with these empirical regularities in light of these findings brand coefficients in hedonic regressions using high frequency data should not be interpreted as capturing unobserved quality only

delegation and commitment in durable goods monopolies this paper studies a simultaneous move infinite horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort the delegation contract allows for continual interference with managerial incentives in each period the principal rewards the manager according to her performance we show that when the cost of delegation is low relative to profits the principal can attain the precommitment price plan in a perfect rational expectations equilibrium the paper analyzes the robustness of this result under alternative specifications of timing and objectives we also provide a numerical characterization of the equilibrium strategies for the case of linear quadratic payoffs

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

the effects of learning by doing on product innovation by a durable good monopolist abstract we analyze a durable good monopolist s decision to adopt a new and more efficient technology that is readily available at very low or zero adoption cost after an initial period of learning by doing the new technology makes the good more attractive to consumers anticipating a better product consumers delay their current purchases which lowers today s profits but increases future profits since the monopolist can charge a higher price for the high quality good we show that the effect on overall profit depends on variables such as the degree of innovation for certain parameter values the monopolist adopts the innovation even when it is not first best to do so we also provide conditions under which the monopolist finds it optimal to continue using the inferior production technology even if the innovation is freely available the latter result provides a possible rationale for a firm to hold on to a sleeping patent when its use is socially desirable

innovation and the durable goods monopolist the optimality of frequent new version releases when an improvable durable good such as packaged software saturates the market the seller could be tempted to release new versions too frequently hurting her profit a novel contractual device which i term as a free new version rights warranty free nvr warranty can help the seller overcome this temptation in a two period game theoretic model involving a monopolist firm facing heterogeneous consumers i derive conditions under which a rational monopolist can act suboptimally she could face a commitment problem and offer the new version even if doing so lowers her overall profit profit is hurt because when consumers expect a new version a fewer consumers buy the initial version and b the monopolist is forced to charge a lower price for the initial version i show how the free nvr warranty which requires the monopolist to offer consumers the right to receive the new version for free for a limited period can solve her commitment problem this is a new surprising finding by bundling new version rights with the initial version the monopolist at first appears to be denying herself future revenue i derive conditions under which this apparently unprofitable action is optimal which is my main contribution when free nvr is offered consumer surplus decreases and social surplus increases this work extends prior literature on durable goods and the coase conjecture to innovative durable goods with network externalities the findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects as well as for their consumers

capacity choice counters the coase conjecture the coase conjecture 1972 is the proposition that a durable goods monopolist who sells over time and can quickly reduce prices as sales are made will price at marginal cost subsequent work has shown that in some plausible cases that conjecture does not hold we show that the coase conjecture does not hold in any plausible case in particular we examine that conjecture in a model where there is a vanishingly small cost for production capacity and the seller may augment capacity in every period in the gap case any positive capacity cost ensures that in the limit as the size of the gap and the time between sales periods shrink the monopolist obtains profits identical to those that would prevail when she could commit ex ante to a fixed capacity given a standard condition on demand those profits are at least 29 8 of the full static monopoly optimum

dual distribution channels the competition between rental agencies and dealers managerial decisions involving marketing channels are among the most critical that an organization must make part of the reason for this importance is that relationships between manufacturers and their intermediaries usually involve long term commitments that are difficult to change on the other hand in order to respond to the realities of the market place an organization must be ready to adapt its distribution practices sometimes under considerable uncertainty about the long term consequences such a problem faces the u s automobile industry which has led manufacturers to experiment with various channel structures when manufacturers first changed their distribution policies they were clear about the short term effect on sales but were unsure about its longer term impact on profitability in this article we develop a model to analyze the marketing of durable products through multiple channels our analysis suggests that even though it was not apparent at the time manufacturers were indeed behaving optimally when they changed their policies our model provides insights not only to automobile manufacturers but also to practitioners and academics who are interested in understanding the unique problems associated with marketing durable products through multiple channels we develop a two period model by assuming that a single manufacturer markets a durable product through two retailers a rental agency and a dealer the rental agency focuses mainly on renting the product in a daily rental market while the dealer focuses on selling the product to a different set of customers in the sales market to model the development of channels in the u s automobile industry we analyze three different channel structures the first structure a separate channel reflects the state of the industry through most of the 1980s when rental agencies were franchised solely to rent and dealers solely to sell the cars in response to a decrease in overall sales manufacturers encouraged rental agencies to sell their slightly used rental cars in the consumer market resulting in the second structure an overlapping channel dealers did not like this arrangement however and in the next experiment a buyback channel some manufacturers began buying back used rental cars and selling them through dealers in terms of the consumer side of the model we assume that consumers are heterogeneous and have product valuations that are distributed uniformly between a low and a high value in addition they recognize that as the durable depreciates with use its secondhand market value decreases while both sold and rented goods depreciate with use we assume based on an analysis of market prices that sold goods depreciate at a higher rate than rented goods given these different depreciation rates and consumers underlying utility functions we develop the market demand functions in the dealer s and rental agency s markets then for each of the channel structures we solve the intermediaries and manufacturer s problems the main contribution of this article is that it allows us to evaluate the profitability associated with various channel structures for all the players in our analysis the dealer the rental agency and the manufacturer in terms of the intermediaries we find that the overlapping channel is the most profitable structure for the rental agency on the other hand it is the least profitable for the dealer in terms of manufacturer profitability our model suggests that the separate channel is the least profitable and the overlapping channel is the most profitable it is interesting to note that the distribution structure in existence today is more akin to a buyback channel this strikes us as a compromise channel which alleviates dealer concerns with the overlapping channel and yet does not harm rental agencies as much as a separate channel these are surprising results because conventional wisdom has been that the overlapping channel was competing away profits for all players this suggests to us that automobile manufacturers were indeed on the right track when they began experimenting with the structure of their distribution channels

durable goods monopoly learning by doing and the coase conjecture abstract the coase conjecture states that if a durable goods monopolist can make offers to sell arbitrarily frequently then in equilibrium she will charge the competitive price and the market will be saturated quickly this conjecture is shown to be refuted when production of the durable good is subject to learning by doing for the linear case it is shown that there exist a stationary strategy perfect equilibrium in which the monopolist charges competitive prices but the market is saturated slowly an interesting analogy between bargaining and durable goods monopoly with learning by doing is also pointed out

sale or lease durable goods monopoly with network effects this paper studies the pricing problem of a durable goods monopolist it finds that contrary to the existing literature profits from selling durable goods might be higher than from leasing when the products exhibit network effects under the influence of network effects there exist multiple self fulfilling equilibria that would sustain different network sizes at the same price by using the assumption that consumers are cautious about network growth we find that consumption externalities among heterogeneous groups of consumers generate a discontinuous demand function which requires a lessor to offer a low price if she wants to reach the mass market in contrast a seller enjoys a relative advantage in that she can build a customer base by setting a lower initial price and raise the price later in the mass market our finding that selling can be more profitable than leasing holds when consumers are more cautious about the prospect of the product s success which might be the case if for example the technology or manufacturer is relatively unknown

the time pattern of hedging and the volatility of futures prices the paper proposes a multi period model of hedging which allows for a futures position to be revised within the cash market holding period within this framework we assess the robustness of the two period theory of hedging when generalized to many periods we characterize the normal time path of a hedge and the way it is affected by the requirement that futures accounts mark to market daily finally we show how the resolution of production uncertainty over time affects hedging behavior and determines the volatility of futures prices in the large literature on hedging in futures markets the principal analytical accounts of hedging are framed in a two trade date setting an agent commits himself now to a future purchase or sale of a good whose cash price later is uncertain this risk is hedged by purchase or sale of an appropriate number of futures contracts and holding this futures position until the cash transaction is realized in the present paper we formulate a multi period model of hedging which allows for the futures position to be revised within the cash market holding period the resulting analysis captures an important institutional reality that is absent in a two trade date model namely the fact that the day to day fluctuations of the futures price will generate a series of random cash flows over the period during which a futures position is held this is due to the requirement that futures accounts mark to market daily within this framework we address a number of issues first we assess the robustness of the two period theory of hedging when generalized to many periods second we characterize the normal time path of a hedge and contrast futures and forward contracts from the perspective of an individual hedger finally we show how the resolution of production uncertainty over time affects hedging behaviour and determines the volatility of futures prices while the literature on asset demand in a multiperiod setting is large futures markets are specifically treated in a limited number of studies grauer and litzenberger 1976 are concerned principally with characterizing the relation of spot and futures prices in a market for a storable periodically produced commodity they offer a rationale for positive stock holding in markets where spot price exceeds the futures price richard and sundaresan 1980 are also concerned primarily with characterizing price behaviour since they posit identical consumers in equilibrium individual holdings of futures are zero there is no hedging activity in the sense that we understand it breeden 1980b analyzes the optimal futures position sizes in a multiperiod setting his framework is more general than ours in that his is a multi good multi asset model where preferences

outside options and the failure of the coase conjecture a buyer wishes to purchase a good from a seller who chooses a sequence of prices over time each period the buyer can also exercise an outside option abandoning their search or moving on to another seller we show there is a unique equilibrium in which the seller charges a constant price in every period equal to the monopoly price contravening the coase conjecture we then embed the singleseller model into a search framework and show the result provides a foundation for the usual no haggling assumption jel c78 d42 d43 l12 l13 the coase conjecture is a cornerstone of modern microeconomic theory informing monopoly theory and providing a canonical example of the problem of commitment the idea is that for any given price high value buyers are more likely to purchase than low value buyers leading to negative selection in the demand pool accordingly the seller cuts its price over time causing high value buyers to delay their purchases the seller s inability to commit thus leads its later selves to exert a negative externality on its former selves reducing its overall profit gul sonnenschein and wilson 1986 this idea of negative selection is robust versions of it hold when costs are nonlinear kahn 1986 when goods depreciate over time bond and samuelson 1984 when there is entry of new buyers sobel 1991 and when the buyers face future competition fuchs and skrzypacz 2010 in this article we show that the coase conjecture fails in a natural environment where buyers have an outside option they can choose to exercise we consider a seller who faces a buyer or a continuum of buyers with unknown value for the good and unknown outside option each period the seller chooses price p t the buyer then chooses to buy wait or exercise his option and terminate the game the outside option may come from the possibility of buying another product for example when waiting for the price of the iphone to fall a customer could instead buy a comparable phone from a competitor similarly when bargaining over the price of a car a buyer may abandon negotiations and move on to the next dealer the outside option may also come from pursuing other objectives once the negotiation has terminated for example after he finishes bargaining at a bazaar a tourist could start seeing local attractions

the diffusion of a durable embodied capital innovation abstract this paper shows that some important results of the literature on the diffusion of innovations may change in a significant way when it is simultaneously considered that i there are costs of producing the innovation and ii the potential adopters demands are interdependent

why would a durable good monopolist also produce a cost inefficient nondurable good abstract we develop both commitment and time consistent stationary policies for a monopolist who produces a mixture of goods distinguished by production costs and degree of durability under commitment only the cost efficient durable good is produced and the monopoly output is realized each period for the time consistent stationary case there is an interval for the degree of durability where only the durable good is produced and a higher non overlapping interval where both the cost efficient durable and the cost inefficient nondurable good are produced for any period length when the degree of durability is such that both durable and nondurable goods are provided combined output is less than the competitive output and decreases in the degree of durability approaching the single period monopoly output when both goods are produced the coase conjecture does not hold

durable goods oligopoly abstract this paper models a durable goods oligopoly as a differential game two cases are treated sales where firms cannot lease but must sell the good in question and leasing where firms do not sell but only rent in the sales case firms face increasing marginal cost of production and the good in question depreciates for this case a rational expectations feedback nash equilibrium is constructed for which monopoly or oligopoly output is less than the efficient level this gap between oligopoly and competitive output diminishes as the number of firms increases when firms can only lease the good the good is assumed not to depreciate and the monopoly level of steady state output is compared with the level of steady state output for a feedback equilibrium duopoly for this case the duopoly equilibrium has steady state output that is less than the corresponding efficient level but greater than the monopoly level the leasing model is shown to be isomorphic to the adjustment cost duopoly model of driskill and mccafferty journal of economic theory 49 1989 324 338

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

do sales tax credits stimulate the automobile market in this paper we quantitatively investigate the effectiveness of a sales tax reduction in stimulating sales and profits of durable goods manufacturers our question is motivated by policy makers recent interest in helping ailing automobile manufacturers and in replacing a fleet of highly polluting vehicles president obama s economic stimulus plan for instance has directly targeted the primary market by including a sales tax credit on purchases of new cars and trucks in this paper we show that the benefit of reducing the sales tax measured by its effect on firms profits and sales greatly decreases with the product s durability the magnitude of our findings indicates that one must carefully account for durability and firms behavior when evaluating such policies our findings are robust when we vary key parameters of the market

equilibrium in a durable goods market with lumpy adjustment abstract durable goods are an important component of the business cycle equilibrium models of durable goods markets are made difficult by the lumpy nature of individual purchases we show that a straightforward approximation of the distribution of durable goods holdings gives rise to a tractable equilibrium model we analyze the case of competition as well as that of a monopoly producer

monopoly production of durable exhaustible resources we examine monopoly production of a durable exhaustible resource previous authors have implicitly assumed that the monopolist is able to make binding commitments about future decisions we consider the more plausible case in which the monopolist lacks this ability and must choose from dynamically consistent plans two models are considered a discrete time model in which there is a strictly finite initial stock of the resource and a continuous time model in which costs are an increasing function of cumulative production we find that as a general result monopoly leads to overconservation the monopolist who cannot precommit produces the efficient quantity ultimately but does so too slowly by contrast the monopolist who can precommit produces less than the efficient stock even in the limit we also find that increased importance of exhaustibility hastens the extraction of the resource copyright 1990 by the london school of economics and political science

hedging with price and output uncertainty abstract this paper extends mckinnon s analysis of hedging with price and output uncertainty to the general case where preferences are not necessarily quadratic and probability distribution not necessarily normal

sales and consumer lock in this paper examines the dynamically consistent price path for a new product monopolist unable to commit to future prices when consumers must incur setup costs of adopting the product the authors find that setup costs give rise to a price path with introductory sales along the path periods of high prices during which only locked in or captive customers buy the product alternate with sales low price periods during which new customers adopt the product as the stock of captive customers increases over time sales become less frequent after the customer base reaches some critical level no further sales take place they show that the monopolist may hold a sleeping patient in which initial sales of the product are postponed to avoid locking into a high pricing strategy that ignores new customers copyright 1989 by the london school of economics and political science

network effects aftermarkets and the coase conjecture a dynamic markovian approach this paper investigates the expansion of the network of a monopolist firm that produces a durable good and is also involved in the corresponding aftermarket we characterize the markov perfect equilibrium of the continuous time dynamic game played by the monopolist and the forward looking consumers under the assumption that consumers benefit from the subsequent expansion of the network the paper contributes to the theoretical discussion on the validity of the coase conjecture analyzing whether coase s prediction that the monopolist serves the market in a twinkling of an eye remains valid in our setup we conclude that the equilibrium network development may actually be gradual contradicting coase s conjecture we find that a necessary condition for such a result is the existence of aftermarket network effects that accrue at least partly to the monopolist firm

durable good monopoly with inventories abstract this paper points out that familiar strategic considerations may induce a durable good monopolist to hold inventories the motive for inventory holding by the monopoly is the standard one of production smoothing but it arises here due to strategic considerations which induce the durable good monopoly to sell uneven quantities over time

on requiring the durable goods monopolist to sell abstract requiring a monopolist to sell its output rather than renting it my lead to beneficial output adjustments or harmful quality adjustments in a durable goods model we show that requiring sales decreases welfare in only a small fraction of cases but it strictly increases welfare in a majority of cases

monopoly pricing with network externalities abstract how should a monopolist price a durable good or a new technology that is subject to network externalities in particular should the monopolist set a low introductory price to attract a critical mass of adopters in this paper we provide intuition as to when and why introductory pricing might occur in the presence of network externalities incomplete information about demand or asymmetric information about costs is necessary for introductory pricing to occur in equilibrium when consumers are small

quality and price personalization under customer recognition a dynamic monopoly model with contrasting equilibria abstract we present a model of market hyper segmentation where a monopolist acquires within a short time all information about the preferences of consumers who purchase its vertically differentiated products the firm offers a new price quality schedule after each commitment period lower consumer types may have an incentive to delay their purchases until next period to obtain a better introductory offer the monopolist counters this incentive by offering higher informational rents considering the dynamic game played by the monopolist and its customers we find that there is always a markov perfect equilibrium mpe in which the firm immediately sells the good to all customers offering the mussa rosen static equilibrium schedule to first time customers and getting full commitment profits however if the commitment period between two offers is long enough there is another mpe with gradual market expansion contrary to the coasian result for a durable good monopoly we find that in both equilibria the profit of the monopolist increases and the aggregate consumers surplus decreases as the interval of commitment shrinks the model yields policy implications for regulations on collection and storage of customers information

reputation in bargaining and durable goods monopoly this paper analyzes durable goods monopoly in an infinite horizon discrete time game we prove that as the time interval between successive offers approaches zero all seller payoffs between zero and static monopoly profits are supported by subgame perfect equilibria this reverses a well known conjecture of coase alternatively one can interpret the model as a sequential bargaining game with one sided incomplete information in which an uninformed seller makes all the offers our folk theorem for seller payoffs equally applies to the set of sequential equilibria of this bargaining game

a theory of clearance sales clearance sales are widely used by firms as an intertemporal selling policy in particular in markets where firms face demand uncertainty and need to choose capacity in advance clearance sales consist in charging a high price initially but then lowering the price in the sales period high valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price while low valuation consumers wait for the price to drop we develop a simple model of intertemporal monopoly pricing under demand uncertainty and show that clearance sales may be the optimal intertemporal selling policy

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

monopoly with endogenous durability abstract a multi period formulation for a durable good monopoly is developed where production and durability are decision variables when commitment to production is possible neither the level nor the depreciation rate of initial stock has an effect on the selected efficient degree of durability with time consistent production policy the optimal degree of durability is less than the efficient rate and typically increasing in the initial stock and initial degree of durability when a monopolist can switch at any time from an inefficient non durable to an efficient durable there exists a cutoff durability above which only the non durable will be produced otherwise the efficient durable will be produced

durable good monopoly with one hoss shay depreciation abstract this paper analyzes the effects of one hoss shay depreciation on the equilibrium stock path in a monopoly market for a durable good it is shown that the stock path oscillates converging to a stationary level lower than the competitive level

durable goods oligopoly with secondary markets the case of automobiles we study the effects of durability and secondary markets on equilibrium firm behavior in the car market we construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets we derive an econometric model and estimate its parameters using data from the automobile industry over a 20 year period our estimates are used to provide a measure of the competitive importance of the secondary market

products liability and monopoly in a contestable market sustainable monopoly prices outputs and producer care are examined in a contestable market setting under alternative liability rules the market attains a second best optimum under strict liability negligence and no liability the threat of entry is thus sufficient for a monopoly to supply second best optimal product quality copyright 1988 by the london school of economics and political science

licensing information goods abstract a significant amount of research on patent licensing and the diffusion of knowledge is organized around static frameworks of analysis patent holders however may face a dynamic problem namely the intertemporal consistency problem of the durable goods monopolist that is induced by durability on the demand side licensing practices such as exclusive licensing contracts and most favored customer clauses allow patentees to solve or mitigate this dynamic consistency problem there are situations however where these practices are not possible either due to the nature of the patent the case of information goods or due to compulsory patenting laws we study the effects of the intertemporal consistency problem on patent licensing in these situations relative to the existing literature we obtain the following main results i all of the firms that remain in the industry will be using the innovation ii royalty licensing may be superior to fixed fee or auction licensing from the licensor s point of view iii social welfare and consumer surplus may be lower than when the patent holder can commit not to make additional sales iv even for non drastic innovations the price of the good that is produced may be lower than the competitive price corresponding to the initial situation before the innovation was discovered

planned obsolescence and the r d decision by investing in rd i e the r d choice that maximizes current profitability does not maximize overall profitability the result is that if output is sold rather than rented then in its r d decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability

multiperiod production with forward and option markets production and hedging in both forward and options markets are analyzed for forward looking firms that maximize expected utility in the presence of unbiased forward and options prices it is shown that such firms will use options as hedging instruments this result contrasts with the conclusions from studies that assume myopic behavior and occurs because forward looking agents care about the effect of future output prices on profits from future production cycles simulations support the theoretical results and show how the introduction of an options market influences the optimal forward position

dynamic monopoly with nondurable goods abstract a nondurable good monopolist who posts a single price will generally achieve an inefficient outcome but is it possible that the monopolist would achieve efficiency by repeatedly posting prices before delivery if buyers recognize the effect of current purchases on future prices then under complementary ideal conditions the answer is yes on the other hand traditional concerns about monopoly are viable if the seller bears a small cost per buyer of market reopening journal of economic literature classification numbers d42 l12

monopoly extraction of a durable non renewable resource failure of the coase conjecture the author studies a perfect information rational expectations markov equilibrium for the situation where a monopolist extracts a nonrenewable resource that is converted to a durable good even if short run extraction costs are constant the coase conjectur e fails provided that the depreciation rate of the durable good is positive copyright 1993 by the london school of economics and political science

durable goods monopoly with limited choice of commitment strategy when should the monopolist precommit consider a firm a monopolist offering a unique product to a fixed number of potential customers suppose that no consumer desires more than one unit of the good within a given period or across periods that is there is no value to repeat purchases in addition suppose that customers vary with respect to their initial reservation prices which decline over time a natural interpretation is that the monopolist is selling a good that is durable alternatively the firm is providing an entertainment or fashion good consumers may place a premium on obtaining the product quickly before it becomes less useful less stylish or less novel coase 7 conjectured that this firm s ability to extract surplus is limited because the firm has to compete with itself across time periods high valuation customers would be unwilling to pay a high initial price because they would anticipate that over time the firm will be reducing the price in order to sell to lower valuation customers subsequent literature formalizes this as a time inconsistency problem faced by a monopolist unable to make intertemporal commitments a separate strand of the literature proceeds from the polar assumption that the monopolist can precommit to any multiperiod pricing strategy comparison to coase s monopolist is simple higher profits are obtainable under precommitment because more surplus is extracted from high valuation customers an important proposition due to stokey 22 is that it will be optimal for the monopolist to precommit to a declining intertemporal price schedule if consumers with higher initial valuations have a higher rate of time preference 2 otherwise the optimal strategy is to hold price constant at the static monopoly level and to sell no more than the static monopoly quantity 3

malfeasance and the foundations for global trade the structure of english trade in the east indies 1601 1833 drawing on a remarkable data set compiled from ships logs journals factory correspondence ledgers and reports that provide unusually precise information on each of the 4 572 voyages taken by english traders of the east india company hereafter eic we describe the eic trade network over time from 1601 to 1833 from structural images of voyages organized by shipping seasons the authors map over time and space the emergence of dense fully integrated global trade networks to reveal globalization long before what is now called globalization the authors show that the integration of the world trade system under the aegis of the eic was the unintended by product of systematic individual malfeasance private trading on the part of ship captains seeking profit from internal eastern trade

depreciation erodes the coase conjecture if a durable good monopolist produces at constant marginal costs and the good depreciates there exists a family of strong markov perfect equilibrium smpe one member of this family entails instantaneous production of the level of stock produced in a competitive equilibrium this is consistent with the coase conjecture other smpe in the family entail steady state production at a stock level lower than in the competitive equilibrium there may be a jump to these steady states or they may be approached asymptotically monopoly profits are positive in these equilibria and the coase conjecture fails

habit persistence heterogeneous tastes and imperfect competition abstract we examine the dynamic behavior of consumption and price in a setting where imperfectly competitive producers face consumers with various intensities of rational habit persistence we establish that steady state consumption and its persistence rate are lower under time consistent monopoly than under either competition or monopoly commitment under both competition and monopoly commitment the steady state level and the transient path of consumption are unaffected by the relative mix of consumer types in the consistent case both the persistence rate and steady state consumption decrease as the proportion of habitual consumers increases

one is almost enough for monopoly it has been argued that two factors product durability and potential entry may force a monopolist to price at marginal cost this article shows that when these two forces coexist the tendency toward competition may be negated first we prove that durable goods oligopolists without commitment powers may attain joint profits arbitrarily close to those of a monopolist with perfect commitment power second we demonstrate that the presence of a potential entrant may enable a durable goods monopolist to act as if he had commitment power thus potential as well as actual entry may restore monopoly power

replacement cycles income distribution and dynamic price discrimination this article analyses how income distribution intellectual property rights and other regulatory policies such as minimum quality standards determine pricing strategies in a dynamic context where a monopolist periodically introduces new generations or upgrades of a durable good discrimination through quality and screening in this article takes place in a context where consumers buy several versions of the durable good during their lifetime instead of a single version as in inderst s 2008 or koh s 2006 it also differs from glass 2001 in that an equilibrium may emerge in which different consumer types replace their durable generations with different frequencies our modelling is motivated by stylized facts from the last brazilian pof household budget survey

financing durable assets this paper studies the nancing of durable assets in a model with collateral constraints due to limited enforcement durability aects the ease of nancing we show that more durable assets require larger down payments of internal funds per unit of capital making them harder to nance because durability raises the price of an asset and hence the overall nancing need more than its collateral value thus nancial constraints have a bigger impact on purchases of more durable capital such as land structures and durable equipment this basic insight has implications for the choice between new and used capital technology adoption and the rent versus buy decision since new assets are more durable than used ones unconstrained borrowers buy new assets and sell them when they are used while constrained borrowers purchase used assets financial constraints inhibit technology adoption as constrained borrowers may adopt less durable low quality assets that are otherwise dominated technologies more durable assets are more likely to be rented given their larger nancing need legal enforcement aects trade in durable assets and technology adoption with weak legal enforcement economies being net importers of used assets and investing a larger fraction in less durable low quality assets

a theory of finitely durable goods monopoly with used goods market and transaction costs we construct a dynamic game to model a monopoly of finitely durable goods the solution concept is markov perfect equilibria with general equilibria embedded in every time period our model is flexible enough to simultaneously explain or accommodate many commonly observed phenomena or stylized facts such as concurrent leasing and selling active secondary markets for used goods heterogeneous consumers endogenous consumption patterns depreciation an infinite time horizon and nontrivial transaction costs within our model consumers have incentives to segment themselves into various consumption classes according to their willingness to pay and nontrivial transaction costs to sell used goods put strong constraints on consumers consumption sequences in time as a direct consequence of the finite durability the market power of the monopolist remains intact leasing manifests itself as a facilitator of price discrimination by debundling the durable good into new and used portions that are naturally bundled together under outright sales the concurrent leasing and selling reflects the degree of the comparative advantage the monopolist has over consumers in disposing used goods this comparative advantage which is partially exploited by the monopolist and partially shared by the consumers provides a sufficient mechanism to gain pareto improvement on the market

a note on welfare in the durable goods monopoly depending upon the shape of the rental demand curve facing a durable goods monopolist social welfare may be raised or lowered by requiring the monopolist to sell rather than rent its output indeed the equilibrium under rentals may pareto dominate the equilibrium under sales copyright 1989 by the london school of economics and political science

history lessons the birth of impersonal exchange the community responsibility system and impartial justice this occasional feature will discuss episodes and events drawn from economichistory that have lessons for current topics in policy and research responses to thiscolumn and suggestions for future ones should be sent to kenneth sokoloff c ojournal of economic perspectives department of economics university of cali fornia los angeles 405 hilgard ave los angeles california 90095 1477

durability and strategic trade are there rents to be captured abstract this paper analyzes strategic trade policy when home and foreign duopolists produce a durable good that is either sold or leased in a third country durability is important for two reasons it characterizes most of the products discussed in the strategic trade literature and it also calls for explicit dynamic modeling for duopolists who sell their product in a third country market this paper finds the optimal policy to be a tax on domestic output for duopolists who lease the good in a third country market though the optimal policy is a subsidy

optimal price skimming by a monopolist facing rational consumers this paper considers the intertemporal pricing problem for a monopolist marketing a new product the key feature differentiating this paper from the extant management science literature on intertemporal pricing is the assumption that consumers are intertemporal utility maximizers a subgame perfect nash equilibrium pricing policy is characterized and shown to involve intertemporal price discrimination we compare this policy to the optimal policy for a monopolist facing myopic consumers and find that for any given state prices are always lower with rational consumers than with myopic consumers for plausible parameter values the assumption of consumer rationality can be shown to lead to large differences in optimal prices moreover if a monopolist facing rational consumers implements the optimal myopic consumer pricing policy profits can be significantly less than if the monopolist follows the equilibrium pricing policy for rational consumers

selling and leasing strategies for durable goods with complementary products it has been recognized that when a durable goods manufacturer sells its output it has an incentive to produce at a rate that will drive down the market price of the product over time because anticipation of declining prices makes consumers less willing to invest in owning the durable good selling can be self defeating for the manufacturer if the manufacturer instead leases the product it can eliminate its own incentive to decrease the price over time which allows it to extract larger rents from consumers in this paper we investigate how a durable goods manufacturer s choice between leasing and selling is affected by a complementary product that is produced by an independent firm we show that a durable goods manufacturer that leases its product has an incentive to increase prices by limiting the availability of the product in response to the availability of a complement because this potential for opportunistic behavior discourages output of the complement leasing can also be problematic as a result the durable goods manufacturer faces a trade off between leasing which commits the manufacturer to not overproduce and selling which commits it to not underproduce our contribution is to identify this trade off and show how a durable goods manufacturer can use a combination of leasing and selling to balance its strategic commitment across both its own market as well as the complementary market

durable goods monopoly increasing marginal cost and depreciation this paper combines increasing marginal cost and depreciation in a continuous time model of a durable goods monopolist in contrast to the case of increasing marginal cost but no depreciation analysed by kahn and the case of depreciation with constant marginal cost analysed by bond and samuelson steady state output in this model is less than in the competitive case a turnpike result shows that choice of a long enough time horizon can make the equilibrium path of output in a finite horizon game arbitrarily close to the path of the infinite horizon game

durable goods monopoly with discrete demand we analyze a dynamic game between consumers and the sole seller of a durable good unlike previous analyses we assume that there exists a finite collection of buyers rather than a continuum none of the main conclusions of the literature on durable goods monopoly survives this change in assumption coase s conjecture that a durable goods monopolist cannot earn supracompetitive profits in the continuous time limit bulow s proposition that renting a durable is always more profitable than selling it and stokey s proposition that precommitting to a time path of prices is always optimal are all false when the set of buyers is finite thus the assumption of a continuum of consumers so innocuous and useful a simplification in other contexts has proved misleading in the context of durable goods monopoly

durable goods monopoly with stochastic values i analyze a durable goods model that allows consumers values to vary over time the optimal mechanism for a monopolist is computed and compared to both the sales and leasing equilibria i show that sales may implement the optimal strategy and that the dominance of leasing over sales is not necessarily true this implication is consistent with the prevalence of simple sales contracts in many markets copyright 2001 by the rand corporation

monopoly and oligopoly provision of addictive goods this article investigates monopoly and oligopoly provision of an addictive good consumer preferences are modeled as in becker and murphy 1988 addictive goods have characteristics that create interesting strategic issues when suppliers are noncompetitive we characterize the perfect markov equilibrium of a market with noncompetitive supply of an addictive good and compare it with the efficient solution depending on particular parameter values we find a wide variety of possible steady state outcomes including ones with output above the efficient level and price below marginal cost we also find that market power can be disadvantageous

noncooperative collusion in durable goods oligopoly coase conjectured that a durable goods monopolist who can make offers to sell arbitrarily frequently will lose the ability to extract positive profits this result which has now been proved can be attributed to the inability of the monopolist to commit to maintaining sufficiently high prices in the near future for the case of durable goods oligopoly we show that letting the firms make offers arbitrarily frequently enhances their ability to commit to high prices and in the limit enables the firms to enjoy total market profits equal to the full commitment one shot monopoly profit

imperfect durability and the coase conjecture this article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time we show that there exist three types of stationary equilibria a coase conjecture equilibrium a monopoly equilibrium and a reputational equilibrium when the depreciation rate is low the coase conjecture equilibrium is the unique equilibrium for intermediate values of the depreciation rate all three equilibrium types coexist when the depreciation rate is high the monopoly equilibrium is the unique equilibrium consequently when selling a good of sufficiently low durability the monopolist does not lose any of her monopoly power furthermore the steady state output in the reputational equilibrium falls below the monopoly quantity hence in durable goods markets welfare losses due to monopoly power may be larger than in markets for perishables

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

large shareholders monitoring and ownership dynamics toward pure managerial firms abstract we study ownership dynamics when the manager and the large shareholder both risk neutral simultaneously choose effort and monitoring level respectively to serve their non congruent interests we show that there is a wedge between the valuation of shares by atomistic shareholders and the large shareholder s valuation at the markov perfect equilibrium the large shareholder divests her shares if the incongruence of their interests is mild divestment is drastic all her shares are sold immediately if their interests diverge sharply the divestment is gradual in order to prevent a sharp fall in share price in the limit the firm becomes purely managerial

a dynamic equilibrium model of durable goods monopoly abstract in this paper we construct a simple dynamic general equilibrium model of durable goods monopoly in a discrete time framework and show that a revised coase conjecture monopolists are efficient under a proper tax subsidy policy holds even in the case of increasing marginal cost if the length of each period in the discrete model is sufficiently short

coase and hotelling a meeting of the minds in this paper we tie together the two literatures of durable goods monopoly and exhaustible resource pricing we show that the intertemporal no arbitrage condition that arises if the durable good monopolist seller can commit to a price path mirrors the intertemporal no arbitrage condition if the monopsonist buyer of an exhaustible resource can commit to a price path the intuition is that the durable good monopolist initially announces high future prices to get high valuation buyers to buy early and subsequently lowers the price to attract additional buyers on the other hand the monopsonist buyer of the exhaustible resource initially announces low future prices to encourage sellers to supply their units early and subsequently as the stock of the resource declines raises the price to call forth additional supply as the period of commitment shrinks to zero the durable good s price drops to its marginal cost and the exhaustible resource s price jumps to its choke level all in a twinkling of the eye a

research note the role of production lead time and demand uncertainty in marketing durable goods firms often have to make their production decisions under conditions of demand uncertainty this is especially true for product categories such as automobiles and technology goods where the lead time needed for manufacturing forces firms to make production decisions well in advance of the selling season once the firm has produced the goods the available production volume affects the firm s subsequent marketing decisions in this paper we study the relationship between the firm s production and marketing decisions for a durable goods manufacturer we develop a dynamic model of a durable product market in which the demand functions are developed from a micromodeling of consumer utility functions and an equilibrium analysis of consumer strategies after taking into account the demand uncertainty as well as the potential for cannibalization of future sales the manufacturer makes its production and sales decisions we find that the firm s optimal inventory level is u shaped in the durability of the product and that the firm suffers a larger loss due to uncertainty when it is leases rather than sells its products furthermore unlike the case for nondurables for durable goods we find that the effect of uncertainty persists even after the uncertainty has been resolved