Habits, Market Power, and Policy Selection

Luca Bossi and Vladimir Petkov ()

No 702, Working Papers from University of Miami, Department of Economics

Abstract: This paper examines monopolistic behavior in a framework with habit formation and consumer commitment. We show that time consistent output and pricing policies yield di®erent market outcomes. Policy selection determines the strategic properties of the producer's intra-personal game: current and future quantities are strategic com- plements, while current and future prices are strategic substitutes. In both a simple two-period model and an in¯nite-horizon model, we ¯nd that pricing policies allow the monopolist to attain higher equilibrium pro¯ts.

Keywords: Habit persistence; monopoly; time consistency (search for similar items in EconPapers)
JEL-codes: D11 D42 L12 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2007-05-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Forthcoming: Under Review

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Persistent link: https://EconPapers.repec.org/RePEc:mia:wpaper:0702

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