Foundations of Dynamic Monopoly and the Coase Conjecture*
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Coasean Fictions: Law and Economics Revisited
Seattle Journal for Social Justice Volume 5 Issue 2 Article 28 May 2007 Coasean Fictions: Law and Economics Revisited Alejandro Nadal Follow this and additional works at: https://digitalcommons.law.seattleu.edu/sjsj Recommended Citation Nadal, Alejandro (2007) "Coasean Fictions: Law and Economics Revisited," Seattle Journal for Social Justice: Vol. 5 : Iss. 2 , Article 28. Available at: https://digitalcommons.law.seattleu.edu/sjsj/vol5/iss2/28 This Article is brought to you for free and open access by the Student Publications and Programs at Seattle University School of Law Digital Commons. It has been accepted for inclusion in Seattle Journal for Social Justice by an authorized editor of Seattle University School of Law Digital Commons. For more information, please contact [email protected]. 569 Coasean Fictions: Law and Economics Revisited Alejandro Nadal1 After the 1960s, a strong academic movement developed in the United States around the idea that the study of the law, as well as legal practice, could be strengthened through economic analysis.2 This trend was started through the works of R.H. Coase and Guido Calabresi, and grew with later developments introduced by Richard Posner and Robert D. Cooter, as well as Gary Becker.3 Law and Economics (L&E) is the name given to the application of modern economics to legal analysis and practice. Proponents of L&E have portrayed the movement as improving clarity and logic in legal analysis, and even as a tool to modify the conceptual categories used by lawyers and courts to think about -
Cahier 06-2014 Network Effects, Aftermarkets and the Coase Conjecture
Cahier 06-2014 Network Effects, Aftermarkets and the Coase Conjecture : A Dynamic Markovian Approach Didier LAUSSEL, Ngo Van LONG and Joana RESENDE Le Centre interuniversitaire de recherche en économie quantitative (CIREQ) regroupe des chercheurs dans les domaines de l'économétrie, la théorie de la décision, la macroéconomie et les marchés financiers, la microéconomie appliquée ainsi que l'économie de l'environnement et des ressources naturelles. Ils proviennent principalement des universités de Montréal, McGill et Concordia. Le CIREQ offre un milieu dynamique de recherche en économie quantitative grâce au grand nombre d'activités qu'il organise (séminaires, ateliers, colloques) et de collaborateurs qu'il reçoit chaque année. The Center for Interuniversity Research in Quantitative Economics (CIREQ) regroups researchers in the fields of econometrics, decision theory, macroeconomics and financial markets, applied microeconomics as well as environmental and natural resources economics. They come mainly from the Université de Montréal, McGill University and Concordia University. CIREQ offers a dynamic environment of research in quantitative economics thanks to the large number of activities that it organizes (seminars, workshops, conferences) and to the visitors it receives every year. Cahier 06-2014 Network Effects, Aftermarkets and the Coase Conjecture : A Dynamic Markovian Approach Didier LAUSSEL, Ngo Van LONG and Joana RESENDE CIREQ, Université de Montréal C.P. 6128, succursale Centre-ville Montréal (Québec) H3C 3J7 Canada Téléphone : (514) 343-6557 Télécopieur : (514) 343-7221 [email protected] http://www.cireqmontreal.com Dépôt légal - Bibliothèque nationale du Canada, 2014, ISSN 0821-4441 Dépôt légal - Bibliothèque et Archives nationales du Québec, 2014 ISBN-13 : 978-2-89382-664-6 Network E¤ects, Aftermarkets and the Coase Conjecture: a Dynamic Markovian Approach Didier Laussel Ngo Van Longy Joana Resendez May 16, 2014 Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS. -
The Coase Conjecture in a Small Market
Bilateral trading and incomplete information: The Coase conjecture in a small market. Kalyan Chatterjee1 Kaustav Das2 3 April 15, 2016 1Department of Economics, The Pennsylvania State University, University Park, Pa. 16802, USA. email; [email protected] 2Department of Economics, University of Exeter Business School Streatham Court, Sreatham Campus, Exeter EX44ST, UK, Email: [email protected] 3The authors wish to thank Siddhartha Bandopadhyay, Martin Cripps, Bhaskar Dutta, Faruk Gul, Ed Green, Vijay Krishna, Selçuk Özyurt, Larry Samuelson and Asher Wolinsky for their insightful comments and suggestions. We also thank the conference participants of the Royal Economic Society, World Congress of the Econometric Society and the seminar participants at the University of Brown and the Indian Statistical Institute for helpful comments. We thank the Human Capital Foundation (www.hcfoundation.ru), and especially Andrey P. Vavilov, for support to The Pennsylvania State University’s Department of Economics. Dr Chatterjee would also like to thank the Institute for Advanced Study, Princeton, and the Richard B. Fisher endowment for financial support of his membership of the Institute during the year 2014-15. Abstract We study a model of decentralised bilateral interactions in a small market where one of the sellers has private information about her value. There are two identical buyers and another seller, apart from the informed one, whose valuation is commonly known to be in between the two possible valuations of the informed seller. This represents an attempt to model alternatives to current partners on both sides of the market. We consider an infinite horizon game with simultaneous one-sided offers and simultaneous responses. -
Pricing and Welfare Impacts of New Crop Traits: the Role of Iprs and Coase's Conjecture Revisited
AgBioForum, 11(2): 134-144. ©2008 AgBioForum. Pricing and Welfare Impacts of New Crop Traits: The Role of IPRs and Coase’s Conjecture Revisited Richard K. Perrin and Lilyan E. Fulginiti Crop traits are durable when embedded in varieties, and thus University of Nebraska-Lincoln they may be subject to Coase’s conjecture that monopolists who sell durables may be unable to earn normal monopoly rents, or in the extreme case, not any rents at all. To determine the poten- tial relevance of this conjecture for the crop traits market, we analyze the theoretical time path of trait prices under three sys- tems of intellectual property rights (utility patents, plant breed- ers’ rights, and none), alternative assumptions about sellers’ ability to commit to future action, and alternative assumptions that buyers are either myopic or far-sighted with respect to expectations about the future price of the durable. Under only one of these stylized circumstances does the Coase conjecture have traction, but it is a plausible circumstance in much of the world—owners with plant breeders’ rights, buyers with foresight, sellers unable to commit to future price paths. In this circum- stance, this theory suggests that sellers holding only plant breeders rights would realize only 11% of potential social wel- fare benefits from the trait, while farmers and/or downstream consumers would realize about 85%. On the other hand, with myopic buyers under any system of intellectual property rights, temporal price discrimination is feasible, resulting in above-nor- mal monopolist welfare (about 70% of maximum social welfare benefits) and little damage to consumers relative to normal monopoly pricing. -
Digitization and Profitability* Yasushi Masuda† and Seungjin Whang∗∗ Keio University† and Stanford University∗∗ Apri
Digitization and Profitability* Yasushi Masuda† and Seungjin Whang∗∗ Keio University† and Stanford University∗∗ April 19, 2019 Abstract Consider a monopolistic vendor who faces a known demand curve. By setting a price that equates marginal revenue with marginal cost, the vendor will maximize his profit. This logic holds true of both physical and digital products. But since digitization will lower the variable production cost, it will strictly increase the profit to the vendor. Then, can we conclude that digitization always improves the vendor’s profitability? Not necessarily. Now consider what will happen on the next day of the sales. Facing deterministic demand, the physical product vendor must have prepared the exact quantity of the product to sell, and thus would be left with zero inventory. By contrast, the digital product vendor will have more, and infinitely more, “leftover” stock, thanks to the nature of the digital product. Therefore, the rational vendor will try to sell more and achieve a higher profit after the sales date. To this end, the vendor will now lower the price to attract additional customers with lower reservation prices. The process will indefinitely continue. Knowing this would happen, customers will wait for the price reduction. Even the customers who would have purchased on the first day would reconsider buying it now, and instead choose to wait. The digital product vendor will anticipate this and accordingly lower the price on the first day and later, thereby compromising his profitability. Note that this downward spiral takes place as a result of digitization. Thus, digitization may not necessarily improve the profitability to the vendor. -
The Durapolist Puzzle: Monopoly Power in Durable-Goods Markets
The Durapolist Puzzle: Monopoly Power in Durable-Goods Markets Barak Y. Orbacht This Article studies the durapolist, the durable-goods monopolist. Durapolists have long argued that, unlike perishable-goods monopolists, they face difficulties in exercising market power despite their monopolistic position. During the past thirty years, economists have extensively studied the individual arguments durapolists deploy regarding their inability to exert market power. While economists have confirmed some of these arguments, a general framework for analyzing durapolists as a distinct group of monopolists has not emerged. This Article offers such a framework. It first presents the problems of durapolists in exercising market power and explains how courts have treated these problems. It then analyzes the strategies durapolists have devised to overcome difficulties in acquiringand maintainingmonopoly power and the legal implications of these strategies. This Article's major contributions are (a) expanding the conceptual scope of the durapolistproblem, (b) presenting the durapolist problem as an explanationfor many common business practices employed by durapolists, and (c) analyzing the legal implications of strategies employed to overcome the durapolistproblem. Introduction ........................................................................................... 68 I. The Durapolist Problem: Extracting Rent for Future Consumption ................................................................................. 69 A. Durablesvs. Perishables...................................................... -
ANU Inaugural Trevor Swan Distinguished Lecture New Lecture Theatre, John Curtin School of Medical Research, Bldg 54, Garran Rd
ANU Inaugural Trevor Swan Distinguished Lecture New Lecture Theatre, John Curtin School of Medical Research, Bldg 54, Garran Rd, ANU 4.30pm-6.00pm “How well has the Market Structure Irrelevance Principle for Durability, Product Quality and Innovation withstood the Test of Time?” Peter L. Swan* University of New South Wales First Draft 19 May, 2006 This Version 23rd May, 2006 In my 1970 AER piece, Swan (1970), and related articles I annunciated the then highly controversial “irrelevance” principle. A monopolist will always wish to generate rents in the most efficient and least cost way possible. This means that, generally, a monopolist will produce goods of the same optimal durability as under competition without “planned obsolescence”, and that the monopolist’s product range and quality choices are the same, or at least not systematically inferior. Moreover, an incumbent monopoly is eager to innovate and not suppress superior technology, despite the apparent loss of the incumbent’s existing business. Have these views withstood nearly a 40 year test of time and the “Coase (1972) conjecture” critique? How universal are these ideas, what is the extent of empirical support, and what are their implications for competition and regulatory policy? The “irrelevance principle” when it is boiled down to its essence should not have been at all controversial. It states that rent extraction by a single or multi-product monopolist should be as painless as possible. It is clear that monopoly can give rise to a contraction in output relative to the competitive or social welfare ideal so that one condition for social optimality is violated. -
The Governance of Energy Displacement Network Oligopolies
THE GOVERNANCE OF ENERGY DISPLACEMENT NETWORK OLIGOPOLIES Discussion Paper 96-08 Federal Energy Regulatory Commission Office of Economic Policy October 1996 Revised, May 1997 DISCUSSION PAPER THE GOVERNANCE OF ENERGY DISPLACEMENT NETWORK OLIGOPOLIES Richard P. O'Neill Charles S. Whitmore and Michelle Veloso Office of Economic Policy Federal Energy Regulatory Commission Washington, D.C. Olin Foundation Conference on Gas Policy Issues Yale University School of Management New Haven, Connecticut October 4, 1996 Revised May 1997 The analyses and conclusions expressed in this paper are those of the authors and do not necessarily represent the views of other members of the Federal Energy Regulatory Commission, any individual Commissioner, or the Commission itself. Contents Page Executive Summary ..........................................................v I. Introduction .............................................................1 II. Historical Background: The Inertial Baggage ...................................3 A. Introduction .......................................................3 Early Public Utility Regulation ......................................3 Modern Public Utility Regulation ....................................4 B. The Mathematical School: The Quest for Efficiency .........................5 The Quest for Perfect Rates ........................................5 Dynamic Efficiency and Auctions ....................................8 Unanswered Questions ............................................9 C. The Political School: the Quest -
DURABLE GOOD MONOPOLY. Durable Goods Last for More Than One Period. Demand Is Linked Over Time
DURABLE GOOD MONOPOLY. Durable goods last for more than one period. Demand is linked over time. Suppose a monopolist has the flexibility to charge differ- ent prices over time (intertemporal price discrimination). Downward sloping market demand curve for the durable good with price taking consumers (for example, contin- uum of consumers). As a monopolist, if you sell a lot today, you reduce the demand for your own good tomorrow. If the demand is lower tomorrow, you will have incentive to reduce your price tomorrow. Consumers wait to buy if they believe prices will be sig- nificantly lower later (or quality higher). Incentive to wait depends on price difference perceived and the length of time interval between price revisions. The greater the incentive to wait, the greater the pressure to reduce price now to be able to sell today. As a monopolist, you are competing with future versions of yourself. Coase conjecture [Coase (J. Law Economics & Organiza- tion,1972)]: The flexibility afforded by the ability to charge different prices over time will hurt the monopolist. Consumers will tend to wait for lower prices in the future. This will force the monopolist to charge lower prices to- day. As the time interval between successive price revisions goes to zero, monopolist loses all market power. In the limit, you have a competitive outcome. Monopoly profitislowerwhen intertemporal price dis- crimination can occur. The monopolist is much better off if he can credibly pre- commit to fix price at the initial level forever. The monopolist can also do better if he leases the good instead of selling it. -
A Simple Experimental Test of the Coase Conjecture: Fairness in Dynamic Bargaining
A simple experimental test of the Coase conjecture: fairness in dynamic bargaining Jack Fanning and Andrew Kloosterman December 18, 2017 Abstract In each round of an infinite horizon bargaining game, a proposer proposes a division of chips, until a responder accepts. The Coase conjecture predicts that incomplete information about responders' preferences for fairness will lead to almost immedi- ate agreement on an equal payoff split when discounting between rounds is small. We experimentally test this prediction when chips are equally valuable to both bar- gainers and when they are worth three times as much to proposers, and compare outcomes to an ultimatum game. Behavior offers strong support for the theory. In particular, when chips are more valuable to proposers, initial offers, initial mini- mum acceptable offers, and responder payoffs are significantly higher in the infinite horizon than in the ultimatum game, while proposer payoffs are significantly lower. The Coase conjecture (Coase (1972)) is central to modern bargaining theory. It predicts that a seller who faces a buyer with private information about her value will sell her good almost immediately at close to the buyer's lowest possible value when both agents are patient.1,2 The seller's problem is that she must compete against her future self in an infinite horizon. For any price she offers today, high value buyers will have the greatest incentive to accept. If today's offer is rejected, therefore, the seller should likely infer that she faces a low value buyer, creating an incentive to cut her price tomorrow. But in which case high value buyers should only purchase if today's price is already low (this is known as demand withholding). -
Theory of the Monopoly Under Uncertainty / by Yooman
THEORY OF THE MONOPOLY UNDER UNCERTAINTY Yooman Kim B.A., California State University, 1971 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MaSTER r?F mTS in the Department 0f Economics and Commerce @ Yooman Kim 1978 SIMON FRASER UNIVERSITY June 1978 All rights reserved. This thesis may not be reproduced in whole or in part, by photocopy or other means, without permission of the author. APPROVAL NAME : Yooman Kim DEGREE : Master of Arts TITLE OF THESIS: Theory of the Monopoly under Uncertainty EXAMINING COMMITTEE : Chairmanf Sandra S. Chris tensen Pao Lun Cheng I - .. -.. - .- - - Dennis R. Maki / Choo-whan Kim Department of Mathematics Simon Fraser University ABSTRACT In the traditional monopoly theory, it is argued that a monopolv firm produces the optimum output quantity characterized bv its marginal revenue being equal to marginal cost, and a monopsony firm employs the optimum input quantity characterized by its marginal expenditure being equal to marginal revenue product of input. Traditional in these theories is the presumption that agents act as if economic environments were nonstochas tic. However, recent studies of firms facing uncertainty indicate that several widely accepted results of the riskless theories must be abandoned. This paper extends the traditional monopoly theory to the case where monopolists are interested in maximizing expected utility from profits and they are risk-averse. This paper also examines the behaviors of a monopoly firm facing demand uncertainty and monopsony firm facing cost uncertainty. In the last section of this paper, we will examine the implications of uncertainty in the case of bilateral monopoly. -
Econ 465 Market Power and Public Policy September 16, 2016 1 / 14 Monopoly Overview
Monopoly Monopoly 4: Durable Goods Allan Collard-Wexler Econ 465 Market Power and Public Policy September 16, 2016 1 / 14 Monopoly Overview Definition: A firm is a monopoly if it is the only supplier of a product in a market. A monopolist's demand curve slopes down because firm demand equals industry demand. Five cases: 1 Base Case (One price, perishable good, non-IRS Costs). 2 Natural Monopoly 3 Price Discrimination 4 Bundling 5 Durable Goods Allan Collard-Wexler Econ 465 Market Power and Public Policy September 16, 2016 2 / 14 Durable Goods Monopoly Coase Conjecture. Consider the example of a monopolist who owns all the land in the world and wants to sell it at the largest discounted profit. In year 1, the monopolist sets a monopoly price and sells half the land. (Think of a linear demand curve with marginal cost at zero.) In year 2, the monopolist will want to do the same with the remaining land, but unless the population is growing very quickly, demand for land will be lower. Thus, the monopoly land price in year 2 will be lower. Coase conjecture: if consumers do not discount time too heavily and if consumers expect price to fall in future periods, current demand facing the monopolist will fall, implying that the monopoly will charge a lower price (compared to a perishable good). (Price is driven to marginal cost \in the blink of an eye") Allan Collard-Wexler Econ 465 Market Power and Public Policy September 16, 2016 3 / 14 Durable Goods Monopoly Crucial assumptions: 1 durable good 2 demand does not grow quickly over time 3 consumers anticipate price cuts As we will see, the assumption of a downward sloping demand (with a continuum of consumers) is also a crucial assumption.