Working Paper: CEPR ID: DP4047
Authors: Roman Inderst
Abstract: What is the optimal strategy of a durable-goods monopolist that can offer goods in different qualities? This Paper provides an answer for the case where the market is segmented into low- and high-income buyers. If the monopolist can change their product and price policy sufficiently rapidly - which reduces their commitment power - we find that the whole market is served immediately. Low-quality goods may be sold below costs. These results are strikingly different to those obtained with non-durable goods and to those obtained if the durable good comes only in a single quality. In an extension we further employ our results to discuss how policies of restricted versioning fare differently with non-durable and durable goods.
Keywords: Coase conjecture; durable-goods monopolist; price discrimination; screening
JEL Codes: C78; D42; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monopolist's pricing strategy (D42) | market coverage (M31) |
| reduction of commitment power (D70) | sale of low-quality goods (L81) |
| sale of low-quality goods (L81) | higher prices from high-valuation consumers (D11) |
| monopolist's pricing strategy (D42) | willingness of high-valuation consumers to purchase (D12) |
| quality as a means of price discrimination (L15) | time inconsistency problem (D15) |