One is Almost Enough for Monopoly

Lawrence M. Ausubel and Raymond J. Deneckere

RAND Journal of Economics, 1987, vol. 18, issue 2, 255-274

Abstract: It has been argued that two factors -- product durability and (potential) entry -- may force a monopolist to price at marginal cost. This article shows that when these two forces coexist, the tendency toward competition may be negated. First, we prove that durable goods oligopolists without commitment powers may attain joint profits arbitrarily close to those of a monopolist with perfect commitment power. Second, we demonstrate that the presence of a potential entrant may enable a durable goods monopolist to act as if he had commitment power. Thus, potential as well as actual entry may restore monopoly power.

Date: 1987
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