Working Paper: CEPR ID: DP12708
Authors: Francesco Nava; Pasquale Schiraldi
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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price revision frequency (D49) | market outcomes (P42) |
| monopolist pricing strategy (D42) | profit outcomes (L21) |
| valuation gaps (D46) | market dynamics (D49) |
| introduction of multiple varieties (Y20) | monopolist's commitment problem (D42) |
| market clearing (D41) | monopoly profits (D42) |