Economics Dictionary of ArgumentsHome
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| Durable goods: Durable goods in economics are products designed to last for an extended period. Examples include cars, appliances, and electronics. The opposite term is consumer goods. See also Consumer Goods, Consumption, Goods, Exchange, Service._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Ronald Coase on Durable Goods - Dictionary of Arguments
Kiesling I 50 Durable goods/Coase/Kiesling: One of Coase’s most theoretical and abstract works, “Durability and Monopoly” (1972(1)), starts by posing yet another deceptively simple question: “Assume that a supplier owns the total stock of a completely durable good. At what price will he sell it?” (1972(1): 143) If the good is completely durable (i.e., does not depreciate) and no other supplies and suppliers exist, the profit-maximizing monopolist will charge the competitive price (price = marginal cost), a provocative claim that is known as the Coase Conjecture. The logic of Coase’s argument is 1) Having sold the quantity where marginal revenue equals marginal cost, the monopolist can earn additional profit by selling additional units at a lower price. They can charge a lower price on later units sold and still profit because they do not have to lower the price on the earlier units that were already sold. 2) Consumers have the rational expectation that this price decrease will occur in the future, and will hold off purchasing at the earlier, higher price. 3) If the monopolist can change prices quickly, the initial price will be marginal cost. In essence, the monopolist supplier is competing with its future selves. That intertemporal competition prevents the monopolist from exercising market power to raise prices today. A profit-maximizing monopolist today sells the “monopoly quantity” - that is, a quantity less than would be sold if the seller had no monopoly power—but then has strong incentives to sell more in the future, which requires lowering the price. How could the monopolist avoid this outcome and maintain a higher price? Solution/Coase: Coase suggested leasing the good rather than selling it. A consumer can cancel a lease and then sign a new one if the price is lower, which imposes pricing discipline on the monopolist. Kiesling 51 He also suggested making the good less durable, or in other words, planned obsolescence. Another option is a moneyback guarantee, which creates a disincentive to lower the price. Credible precommitment to a future production schedule could also attenuate the incentive to reduce the price. >Durable goods/Economic theories. 1. Coase, Ronald H. (1972). Durability and Monopoly. Journal of Law and Economics 15, 1: 143-149._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Coase, Ronald Kiesling I L. Lynne Kiesling The Essential Ronald Coase Vancouver: Fraser Institute. 2021 |
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