Uncertain Commitment Power in a Durable Good Monopoly

Gyula Seres

Research output: Working paperDiscussion paperOther research output

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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
PublisherTILEC
Number of pages21
Volume2019-006
Publication statusPublished - 29 Apr 2019

Publication series

NameTILEC Discussion Paper
Volume2019-006

Fingerprint

Polling
Pricing strategy
Futures prices
Private information
Pooling
Purchase
Coase conjecture
Dynamic pricing
Monopolist
Buyers
Relative prices

Keywords

  • monopoly
  • commitment
  • Information asymmetry

Cite this

Seres, G. (2019). Uncertain Commitment Power in a Durable Good Monopoly. (TILEC Discussion Paper; Vol. 2019-006). Tilburg: TILEC.
Seres, Gyula. / Uncertain Commitment Power in a Durable Good Monopoly. Tilburg : TILEC, 2019. (TILEC Discussion Paper).
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Seres, G 2019 'Uncertain Commitment Power in a Durable Good Monopoly' TILEC Discussion Paper, vol. 2019-006, TILEC, Tilburg.

Uncertain Commitment Power in a Durable Good Monopoly. / Seres, Gyula.

Tilburg : TILEC, 2019. (TILEC Discussion Paper; Vol. 2019-006).

Research output: Working paperDiscussion paperOther research output

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N2 - 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.

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Seres G. Uncertain Commitment Power in a Durable Good Monopoly. Tilburg: TILEC. 2019 Apr 29. (TILEC Discussion Paper).