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Applied Microeconomics X - CREST Seminar : Francesco NAVA (LSE)

Joint work with Pasquale Schiraldi
 
Abstract

The paper analyzes a durable-good monopoly problem in which multiple varieties are produced and sold, and offers insights on product design in this context. A revisited Coase conjecture establishes that the market eventually clears, that equilibrium profits are bounded below by static optimal market-clearing profits, and that, in any stationary equilibrium, profits converge to the lower bound as discount factors converge to unity. Equilibrium profits differ from zero (even without gaps), as static optimal market-clearing profits equal zero only when all varieties are identical. Product design results then establish why discordant (horizontally differentiated) varieties are profit maximizing for the monopolist, and why niche products can be optimal when multiple varieties are for sale.
 

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