Spatial Monopoly with Upgrades of Durable Goods

Yong-Cong Yang, Pu-yan Nie, Zhao-Hui Wang and Tan Zheng-Xun

Prague Economic Papers, 2019, vol. 2019, issue 5, 516-531

Abstract: This paper establishes a two-stage Hotelling model to identify the implications of the upgrades of durable goods produced by a spatial monopoly. The major findings indicate that, due to the positive effects on profits of the upgrading of products, the monopoly has the motivation to launch upgraded versions with high quality instead of solely producing products with low quality. The monopoly, meanwhile, would not make a commitment to either the high-quality products or the low-quality ones. In addition, the price of the low-quality products decreases as upgraded ones appear on the market in a second stage, since no consumers would store the low-quality products for future consumption.

Keywords: durable goods; spatial monopoly; commitment; upgrade; game theory (search for similar items in EconPapers)
JEL-codes: C61 C72 D40 L10 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.18267/j.pep.712

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