Quality, upgrades and equilibrium in a dynamic monopoly market

James J. Anton and Gary Biglaiser

Journal of Economic Theory, 2013, vol. 148, issue 3, 1179-1212

Abstract: We examine an infinite horizon model of quality growth for a durable goods monopoly. The seller may offer any bundle(s) of current and previous quality improvements (upgrades). Subgame perfect equilibrium seller payoffs range from capturing the full social surplus down to only the initial flow value of each good, as long as the value of all future quality growth exceeds the value of a single unit. Each of these payoffs is realized in a Markov perfect equilibrium that follows the socially efficient path. However, inefficient delay equilibria, with bundling, exist for innovation rates above a threshold.

Keywords: Upgrades; Durable goods; Monopoly; Market power; Coordination; Bundling (search for similar items in EconPapers)
JEL-codes: C72 C73 D42 L15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:3:p:1179-1212

DOI: 10.1016/j.jet.2012.12.006

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