Regret in Durable-Good Monopoly

Rumen Kostadinov

Department of Economics Working Papers from McMaster University

Abstract: I study a dynamic model of durable-good monopoly where the seller cannot commit to future prices and is uncertain about the buyer’s value. I adopt a prior-free approach where the seller minimises lifetime regret against the worstcase type of the buyer. In the unique equilibrium the seller’s worst-case regret against types who purchase at any given time equals the worst-case regret against types who purchase at any other time. The seller cannot profitably deviate even if he could commit to his deviation. Despite this, the equilibrium does not match the commitment outcome. This is because the seller’s objective is endogenously determined by his optimal counterfactual behaviour against each type, which is time-inconsistent. The Coase conjecture holds: in the frequent-offer limit the good is sold immediately at a price equal to the lowest value.

Keywords: durable-good monopoly; Coase conjecture; regret (search for similar items in EconPapers)
JEL-codes: C73 D81 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2024-03
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2024-02

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