Uncertain Commitment Power in a Durable Good Monopoly

TILEC Discussion Paper No. 2019-006

CentER Discussion Paper No. 2019-012

21 Pages Posted: 8 May 2019

See all articles by Gyula Seres

Gyula Seres

Humboldt University of Berlin; Tilburg Law and Economics Center (TILEC)

Date Written: April 17, 2019

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 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

Seres, Gyula, Uncertain Commitment Power in a Durable Good Monopoly (April 17, 2019). TILEC Discussion Paper No. 2019-006, CentER Discussion Paper No. 2019-012, Available at SSRN: https://ssrn.com/abstract=3373560 or http://dx.doi.org/10.2139/ssrn.3373560

Gyula Seres (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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