Commitment Power in a Non-Stationary Durable-Good Market

Abstract

This paper derives and evaluates the decisions of a durable good monopolist in a context where demand for the services of the durable good changes over time. It shows that, if the size of the market decreases over time, social welfare may be higher when the monopolist has commitment ability than when she has not. Moreover, the equilibrium under a monopolist seller with commitment power may Pareto-dominate the equilibrium under a monopolist seller without commitment ability. The work also proves that these results obtain if there is uncertainty about future demand for the services of the durable good.