Dynamic Durable Goods Monopoly and Market Power

Abstract

We analyze a vertically differentiated market for an imperfectly durable good served by a monopolist in an infinite-horizon, discrete-time game. Our goal is to identify the Markov perfect stationary equilibria where the seller can maintain his monopoly power. We establish that the set of parameters supporting a monopoly outcome is larger when the seller offers different quality versions of the same product. Hence, our results suggest that, when the innate durability of a product is high, the seller should offer different quality versions of the product.

Keywords

• durable goods
• monopoly
• pricing
• quality
• differentiation