Dynamic Monopoly Pricing With Multiple Varieties: Trading Up

Stefan Buehler and Nicolas Eschenbaum

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Abstract: This paper studies dynamic monopoly pricing for a class of settings that includes multiple durable, multiple rental, or a mix of varieties. We show that the driving force behind pricing dynamics is the seller's incentive to switch consumers - buyers and non-buyers - to higher-valued consumption options by lowering prices ("trading up"). If consumers cannot be traded up from the static optimal allocation, pricing dynamics do not emerge in equilibrium. If consumers can be traded up, pricing dynamics arise until all trading-up opportunities are exhausted. We study the conditions under which pricing dynamics end in finite time and characterize the final prices at which dynamics end.

Date: 2021-08, Revised 2021-12
New Economics Papers: this item is included in nep-com, nep-ind, nep-isf, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2108.07146

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