Damaged Durable Goods, Upgrades, and the Coase Conjecture

Altan Basak

Journal of Institutional and Theoretical Economics (JITE), 2018, vol. 174, issue 4, 743-765

Abstract: This study analyzes a damaged-goods market for a perfectly durable good in an infinite-horizon, discrete-time game. We characterize Markov perfect equilibria of this game under different buyer upgrade possibilities as a function of the common discount factor, the length of the time period between successive price changes, and the quality levels of the goods. We establish that introducing a lower-quality good (or equivalently, damaging a good) works as a commitment device only if consumers holding a durable good cannot reenter the market. When a buyer can upgrade the product, we establish that for all parameter values the Coase conjecture survives.

Keywords: durable goods; monopoly; damaged goods; upgrades; pricing (search for similar items in EconPapers)
JEL-codes: C73 L12 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1628/093245618X15160188867245

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