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Regret in Durable-Good Monopoly

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  • Rumen Kostadinov

Abstract

I study a dynamic model of durable-good monopoly where the seller cannot commit to future prices and is uncertain about the buyer’s value. I adopt a prior-free approach where the seller minimises lifetime regret against the worstcase type of the buyer. In the unique equilibrium the seller’s worst-case regret against types who purchase at any given time equals the worst-case regret against types who purchase at any other time. The seller cannot profitably deviate even if he could commit to his deviation. Despite this, the equilibrium does not match the commitment outcome. This is because the seller’s objective is endogenously determined by his optimal counterfactual behaviour against each type, which is time-inconsistent. The Coase conjecture holds: in the frequent-offer limit the good is sold immediately at a price equal to the lowest value.

Suggested Citation

  • Rumen Kostadinov, 2024. "Regret in Durable-Good Monopoly," Department of Economics Working Papers 2024-02, McMaster University.
    • Handle: RePEc:mcm:deptwp:2024-02
    as

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    File URL: http://socialsciences.mcmaster.ca/econ/rsrch/papers/archive/2024-02.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    durable-good monopoly; Coase conjecture; regret;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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