Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Wednesday, June 9, 2010

Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model

Posted by D. Daniel Sokol

James Anton (Duke) and Gary Biglaiser (UNC Chapel Hill) address Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model.

ABSTRACT: We examine an infinite horizon model of quality growth in a durable goods monopoly market. The monopolist generates new quality improvements over time and can sell any available qualities, in any desired bundles, at each point in time. Consumers are identical and for a quality improvement to have value the buyer must possess previous qualities: goods are upgrades. We show that subgame perfect equilibrium payoffs for the seller range from capturing the full social surplus all the way down to capturing only the current flow value of each good and that each of these payoffs is realized in a Markov perfect equilibrium that follows the socially efficient allocation path. This is true for all discount factors. We also show that inefficient equilibria exist for rates of innovation above a threshold.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/06/quality-upgrades-and-equilibrium-in-a-dynamic-monopoly-model.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0133edecbcf5970b

Listed below are links to weblogs that reference Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model:

Comments

Post a comment