Coase versus Pacman: Who Eats Whom in the Durable-Goods Monopoly?

Abstract

In standard durable-goods monopoly models, both the set of buyers and the set of prices are assumed to be continua. If the set of buyers is finite, the perfectly discriminating monopoly outcome is a unique subgame perfect equilibrium when the seller is sufficiently patient. Introducing instead a smallest unit of account yields the Coasian outcome as a generically unique subgame perfect equilibrium for patient enough buyers. A folk theorem is obtained if both sets are finite. These results reflect a strategic disadvantage of having to make moves with a large impact on other players' payoffs. The analysis is extended to durable-goods oligopoly.

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