Uncertain Commitment Power in a Durable Good Monopoly
CentER Discussion Paper No. 2019-012
21 Pages Posted: 8 May 2019
Date Written: April 17, 2019
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 suﬃciently weak. Polling for inﬁnity is also preserved if committing to a high price is endogenously chosen by the ﬁrm.
Keywords: Monopoly; Commitment; Information Asymmetry
JEL Classification: D42, L12, D61, D82
Suggested Citation: Suggested Citation