Abstract:
The paper analyses a durable good monopoly problem in which multiple varieties can be produced and sold. A revisited Coase conjecture establishes that in any equilibrium the market eventually clears and that profits weakly exceed static optimal market-clearing profits. Moreover, equilibrium profits converge to this lower bound as discount factors converge to unity in any stationary equilibrium. Equilibrium outcomes are however inefficient, and prices in general differ from marginal costs at least for some varieties (even without gaps) since static optimal market-clearing profits equal zero only when all varieties are identical. Similar conclusions apply when products can be scrapped or resold.
A somewhat old draft of the project is available on SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2745961
Host: Bård Harstad.