Uncertain Commitment Power in a Durable Good Monopoly

Gyula Seres

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Abstract

This paper considers dynamic pricing strategies in a durable good monopoly model with uncertain commitment power to set price paths. The type of the monopolist is private information of the firm and not observable to consumers. If commitment to future prices is not possible, the initial price is high in equilibrium, but the firm falls prey to the Coase conjecture later to capture the residual demand. The relative price cut is increasing in the probability of commitment as buyers anticipate that a steady price is likely and purchase early. Pooling in prices may occur for perpetuity if commitment is suciently weak. Polling for innity is also preserved if committing to a high price is endogenously chosen by the firm.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages21
Volume2019-012
Publication statusPublished - 29 Apr 2019

Publication series

NameCentER Discussion Paper
Volume201-012

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Keywords

  • monopoly
  • commitment
  • Information asymmetry

Cite this

Seres, G. (2019). Uncertain Commitment Power in a Durable Good Monopoly. (CentER Discussion Paper; Vol. 201-012). Tilburg: CentER, Center for Economic Research.