Foundations of dynamic monopoly and the coase conjecture

Abstract

Subgame-perfect equilibria are characterized for a market in which the seller quotes a price each period. Assume zero costs, positive interest rate, continuum of buyers, and some technical conditions. If buyers' valuations are positive then equilibrium is unique, buyers' strategies are stationary, and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere, Otherwise a continuum of stationary equilibria can exist, but at most one with analytic strategies. Coase's conjecture is verified for stationary strategies: reducing the period length drives all prices to zero or the least valuation. Connections to bargaining models are described. Journal qf Economic Literature Classification Number: 022.

Reputation in Dynamic Games

“…Suppose that $=;. In this case Gul et al [15] show that for large n and for $ close to one the payoff for the monopolist in any subgame perfect equilibrium is close to 2.…”

“…The government must decide, for example, on capital and labor taxes and households choose investment and labor supply. A second application is the analysis of a market for a durable good in which there is a monopoly seller and a continuum of potential buyers (see Coase [4], Gul et al [15]). …”

The Optimal Mechanism for Selling to a Budget-Constrained Buyer

“…The seller values the good at zero. 5 We now present the seller's problem. By the revelation principle, we can restrict attention to direct-revelation mechanisms in which each buyer type has an incentive to report private information truthfully.…”

“…4 An implication of this``no haggling'' result is that screening consumers through a menu of contracts, committing to a declining intertemporal price sequence, or providing low-interest financing do not benefit the seller. In particular, a declining price sequence could only be explained by the seller's inability to commit to the optimal price (see Gul, Sonnenschein and Wilson [5], for example). Yet, the aforementioned practices are often observed, even when the seller appears to possess commitment power.…”

Sequentially Optimal Auctions

“…In this paper, we wed the literature on one-sided offer sequential Ž bargaining see for example, Gul, Sonnenschein, andWilson, 1986, or . Fudenberg, Levine, andTirole, 1986 with that of optimal auctions to characterize the dynamic path of reserve prices in auctions in which a seller can commit not to sell only for an exogenously fixed period of time.…”