Inter-temporal Price Discrimination with Time Inconsistent Consumers

Yianis Sarafidis

No 479, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: This paper looks at the inter-temporal price discrimination game that arises when a monopolist faces naïve-time-inconsistent consumers. En route to solving this game, we introduce two new solution concepts for dynamic games where some players are time inconsistent. The first solution concept is similar in spirit to the subgame perfect Nash equilibrium, whereas the second one relies on backwards induction. Unlike in standard finite games, these solution concepts are not equivalent, even with perfect information. We then use these solution concepts to solve the inter-temporal pricing game with time inconsistent consumers. We derive implications for monopoly profits, consumer welfare and the path of prices (Coase conjecture). We conclude that time inconsistency will reduce monopoly profits and the welfare of all consumers, except of the highest valuation ones. Moreover, with time inconsistent consumers the path of prices will approach marginal cost, but at a lower rate

Keywords: time inconsistency; durable goods monopoly; solution concepts (search for similar items in EconPapers)
JEL-codes: D42 L0 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (5)

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