Econometrica: Sep 1991, Volume 59, Issue 5

Durable Goods Monopoly with Entry of New Consumers

https://doi.org/0012-9682(199109)59:5<1455:DGMWEO>2.0.CO;2-0
p. 1455-1485

Joel Sobel

This paper analyzes a model of a dynamic monopolist who produces at constant unit cost. Each period a new cohort of consumers enters the market. Each entering cohort is identical. Consumers within a cohort have different tastes for the good. My main results are: If players are sufficiently patient, any positive average profit less than the maximum feasible level can be attained in a subgame-perfect equilibrium; in the subset of subgame-perfect equilibria in which players use stationary strategies, the seller cannot make sales at prices significantly greater than the lowest willingness to pay when period length goes to zero; and the seller attains the maximum profit when commitment is feasible by charging the same (static monopoly) price in every period.

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