NON-STATIONARY DEMAND IN A DURABLE GOODS MONOPOLY

In a context where demand for the services of a durable good changes over time, and this change may be uncertain, we show in this paper that social welfare may be higher when the monopolist seller can commit to any future price level he wishes than when he cannot. Moreover, the equilibrium under a monopolist with commitment power may Pareto-dominate the equilibrium under a monopolist without commitment ability. These results affect the desired regulation of a durable goods monopolist in this context. Copyright © 2007 The Author; Journal compilation © 2007 Blackwell Publishing Ltd and The University of Manchester.