Product Line Decisions and the Coase Conjecture

Abstract

We show in this article that the Coase conjecture does not hold when a durable goods monopolist also sells nondurable goods that are demand-related to the durable ones. The presence of nondurable complements or substitutes reduces the rate at which the monopolist introduces the durable good into the market. The price of the durable good does not converge to marginal cost. We analyze the incentives of a monopolist to extend his product line to a durable or a nondurable good. Most significantly the profit from adding a durable good to the product line disappears as the time between offers becomes short. We study the effects of entry into markets for nondurable goods and their implications for merger policy.

JEL Classification: L12, D42