Macroeconomics Seminar Series no.10 - Takeki Sunakawa 10 July 2024

Sustainable Pricing in a Durable Goods Monopoly 

Abstract: Ausubel and Deneckere [1989. Reputation in bargaining and durable goods monopoly. Econometrica 57, 511-531] showed that the monopoly profit is approximately sustainable when agents are patient enough and the length of time is small enough. This paper considers the case in which these conditions do not hold, and examines the short-run dynamics, which are, to my knowledge, neglected in previous studies. This paper finds that the sustainable pricing is intermediate between the monopolistic pricing and the Markov-perfect pricing, and the monopolist quotes the price between the monopolistic price and marginal costs for every period until the market is satiated. At a low discount factor, the sustainable pricing converges to marginal costs, but very slowly. At a sufficiently high discount factor, the speed of convergence becomes arbitrarily slow, which is consistent with Ausubel and Deneckere's result. This paper also considers the effect of introducing depreciation and stochastic marginal cost into the model.

Start Date
End Date
Fred Gruen Economics Seminar Room (H.W. Arndt Bldg 25 A)
Aoociate Professor Takeki Sunakawa (Hitotsubashi University)