Capacity Choice Counters the
نویسنده
چکیده
The Coase conjecture (1972) is the proposition that a durable goods monopolist, who sells over time and can quickly reduce prices as sales are made, will price at marginal cost. Subsequent work has shown that in some plausible cases that conjecture does not hold. We show that the Coase conjecture does not hold in any plausible case. In particular, we examine that conjecture in a model where there is a vanishingly small cost for production capacity, and the seller may augment capacity in every period. In the “gap case,” any positive capacity cost ensures that in the limit, as the size of the gap and the time between sales periods shrink, the monopolist obtains profits identical to those that would prevail when she could commit ex ante to a fixed capacity, given a standard condition on demand. Those profits are at least 29.8% of the full static monopoly optimum. * We thank Ken Hendricks and Philip Reny for their stubborn unwillingness to be convinced by incorrect arguments. We also thank seminar audiences for helpful comments.
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The Coase conjecture (1972) is the proposition that a durable goods monopolist, who sells over time and can quickly reduce prices as sales are made, will price at marginal cost. Subsequent work has shown that in some plausible cases that conjecture does not hold. We show that the Coase conjecture does not hold in any plausible case. In particular, we examine that conjecture in a model where the...
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