This paper studies a simultaneous-move infinite-horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort. The delegation contract allows for continual interference with managerial incentives: in each period the principal rewards the manager according to her performa...

This paper considers a dynamic version of Akerlof’s (1970) lemons problem where buyers and sellers must engage in search to find a trading partner. We show that if goods are durable, the market itself may provide a natural sorting mechanism. In equilibrium, high-quality goods sell at a higher price than lowquality goods but also circulate longer. This accords with the common wisdom that sellers...

We explain why a durable-goods monopolist would like to create a shortage during the launch phase of a new product. We argue that this incentive arises from the presence of a second-hand market and uncertainty about consumers' willingness to pay for the good. Consumers are heterogeneous and initially uninformed about their valuations but learn about them over time. Given demand uncertainty, fir...

There are industries that tend to remain monopolized, with successive generations of a good being introduced by an incumbent monopolist. This paper investigates the tendency of persistent leadership in durable goods industry. In particular it explores the implications of the durability of a good on the pricing and innovation behavior of both the incumbent monopolist and a potential entrant. It ...

The demand for durable goods is more cyclical than that for nondurable goods and services. Consequently, the cash flow and stock returns of durable-good producers are exposed to higher systematic risk. Using the benchmark input-output accounts of the National Income and Product Accounts, we construct portfolios of durablegood, nondurable-good, and service producers. In the cross-section, an inv...

We study consumption of durable and nondurable goods when the durable good is subject to transaction costs. In the model, agents derive utility from a service flow of a durable good and a consumption flow of a nondurable good. The key feature of the model is the existence of a fixed transaction cost in the durable good market. The fixed cost induces an inaction region in the purchase of the dur...

this paper presents a theoretical model in which the stock growth rate of durable goods has stochastic fluctuation over time. it concludes that a social planner increases the expected percentage rate of production since uncertainty increases the user cost from consumer’s point view.

We develop a game-theoretic framework to investigate the competitive implications of consumer-to-consumer electronic marketplaces, which promote concurrent selling of new and used goods. In many e-marketplaces, where suppliers cannot directly use second-hand goods for practicing inter-temporal price discrimination, the threat of cannibalization of new goods by used goods become significant. We ...

A durable purchased at time t 2 [0;1) provides a constant service ‡ow x0 in the interval [t; t + 1]. The price of the durable is reduced periodically: it is equal to p = p0=(1 + ) in the period of time [ ; + 1), 2 N, where 0. Assume that the interest rate equal to the rate of time preference: r = . Consider a consumer that at date t = 0 has no durable and a lifetime wealth w. His optimization p...