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T-Space at The University of Toronto Libraries >
Theoretical Economics >
Volume 4, Number 1 (March 2009) >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1807/17332

Title: The Coase conjecture with incomplete information on the monopolist's commitment
Authors: KyungMin Kim; Department of Economics, University of Pennsylvania
Keywords: Coase conjecture, reputational bargaining, rational commitment
C72, C78, D82
Issue Date: 1-Mar-2009
Publisher: Theoretical Economics
Citation: Theoretical Economics; Vol 4, No 1 (2009)
Abstract: [This item is a preserved copy. To view the original, visit http://econtheory.org/] A key to the Coase conjecture is the monopolist's inability to commit to a price, which leads consumers to believe that a high current price will be followed by low future prices. This paper studies the robustness of the Coase conjecture with respect to these beliefs of consumers. In particular, there is uncertainty over whether the monopolist is committed to a price (i.e. she may be a commitment type). Consequently, consumers are no longer certain that the price will change over time. I consider two kinds of commitment types. A behavioral commitment type charges an exogenously given price, while the rational commitment type optimally chooses a price. I show that the Coase conjecture is robust with regard to uncertainty over the monopolist's commitment. When the probability of behavioral types is sufficiently small, as in the original Coase conjecture, the monopolist earns the competitive profit. When the probability of behavioral types is positive, unlike in the original Coase conjecture, there is positive delay. But the delay disappears as the probability approaches zero. When the commitment type is rational, unless the probability of the commitment type is sufficiently high, both normal and committed monopolists charge the competitive price, and thus there is no delay.
URI: http://hdl.handle.net/1807/17332
Other Identifiers: http://econtheory.org/ojs/index.php/te/article/view/20090017
Rights: Authors who publish in <i>Theoretical Economics</i> will release their articles under the <a href="http://creativecommons.org/licenses/by-nc/2.5/">Creative Commons Attribution-NonCommercial license</a>. This license allows anyone to copy and distribute the article for non-commercial purposes provided that appropriate attribution is given.
Appears in Collections:Volume 4, Number 1 (March 2009)

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