Buying frenzies in durable-goods markets

Ting Liu () and Pasquale Schiraldi ()

No 12-07, Department of Economics Working Papers from Stony Brook University, Department of Economics

Abstract: We explain why a durable-goods monopolist would like to create a shortage during the launch phase of a new product. We argue that this incentive arises from the presence of a second-hand market and uncertainty about consumers?willingness to pay for the good. Consumers are heterogeneous in their valuations. Some consumers are initially uninformed about their valuations and learn about them over time while others are informed through their lifetimes. Given demand uncertainty, first period sales may result in misallocation and lead to active trading on secondary market after the uncertainty is resolved. We characterize conditions under which the monopolist would like to restrict sales and generate a buying frenzy. We show how the monopolist may benefit from an active second-hand market.

Date: 2012-08
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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Citations: View citations in EconPapers (1)

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http://www.stonybrook.edu/economics/research/paper ... ndhandmarket_8_5.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Buying frenzies in durable-goods markets (2014)
Working Paper: Buying frenzies in durable-goods markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:nys:sunysb:12-07

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