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Depreciation Erodes the Coase Conjecture

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  • Karp, Larry

Abstract

If a durable good monopolist produces at constant marginal costs and the good depreciates, there exists a family of Strong Markov Perfect Equilibrium (SMPE) with an infinitesimal period of commitment. One member of this family entails instantaneous production of the level of stock produced in a competitive equilibrium; this is consistent with the Coase Conjecture. Other SMPE in the family entail steady state production at a stock level lower than in the competitive equilibrium. In these equilibria, there may be a jump to the steady state, or the steady state may be approached asymptotically. Monopoly profits are postive in these equilibria, and the Coase Conjecture fails. We contrast this result to other papers which use non-Markov strategies to construct multiple equilibria.

Suggested Citation

  • Karp, Larry, 1995. "Depreciation Erodes the Coase Conjecture," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1fs6j5nn, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt1fs6j5nn
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    Cited by:

    1. Salo, Seppo & Tahvonen, Olli, 2001. "Oligopoly equilibria in nonrenewable resource markets," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 671-702, May.
    2. Driskill, Robert A. & Horowitz, Andrew W., 1996. "Durability and strategic trade Are there rents to be captured?," Journal of International Economics, Elsevier, vol. 41(1-2), pages 179-194, August.

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