Monopoly Pricing of 'Cyclical' Goods

35 Pages Posted: 14 Mar 2003

See all articles by Ramon Caminal

Ramon Caminal

Universitat Autonoma de Barcelona - Institut d'Analisi Economica, CSIC; Centre for Economic Policy Research (CEPR)

Date Written: February 2003

Abstract

Consumption of certain commodities produces transitory saturation, in the sense that potential instantaneous utility for an additional unit is very low immediately after a consumption episode, but increases over time. Such cyclical patterns of preferences have important implications for monopoly pricing: (i) In the absence of commitment, prices may be close to marginal cost. (ii) Prices may be non-monotonic with respect to the degree of commitment, reaching a maximum for intermediate degrees of commitment. (iii) Introduction of loyalty-rewarding schemes may benefit both buyers and sellers. (iv) Restrictions on the timing of purchases (purchase deadlines, sales, contracting both price and frequency) are likely to hurt consumers and increase efficiency.

Keywords: Cyclical preferences, repeat purchases, monopoly pricing, loyalty-rewarding schemes

JEL Classification: D42, L14

Suggested Citation

Caminal, Ramon, Monopoly Pricing of 'Cyclical' Goods (February 2003). Available at SSRN: https://ssrn.com/abstract=385917

Ramon Caminal (Contact Author)

Universitat Autonoma de Barcelona - Institut d'Analisi Economica, CSIC ( email )

08193 Bellaterra
Spain
+34 93 580 6612 (Phone)
+34 93 580 1452 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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