Dynamic monopoly power and the Coase conjecture 

Abstract

In a classical durable-good monopoly environment, we construct mechanisms that implement static monopoly profits while being renegotiation proof. We derive two main results. First, if collective bargaining can be ruled out, then a long-term contract can generate a coordination failure which prevents renegotiation and fully restores monopoly power. Second, with arbitrary renegotiation, a long-term (smart) contract can introduce an asymmetry of information between sellers and potential buyers, which prevents the monopolist from reselling at lower prices. The smart contract approximately achieves static monopoly profits. When the low-valuation customer values the good close to its marginal cost and the discount rate is close to one, the static monopoly allocation can be uniquely implemented, closing the discontinuity between the 'gap' and the 'no-gap' cases.

Keywords: Coase Conjecture, Renegotiation Proofness, Smart Contract