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Cover of: Damaged Durable Goods, Upgrades, andthe Coase Conjecture
Altan Basak

Damaged Durable Goods, Upgrades, andthe Coase Conjecture

Section: Articles
Volume 174 (2018) / Issue 4, pp. 743-765 (23)
Published 09.08.2018
DOI 10.1628/093245618X15160188867245
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  • 10.1628/093245618X15160188867245
This study analyzes a damaged-goods market for a perfectly durable good inan infinite-horizon, discrete-time game. We characterize Markov perfect equilibria of this game under different buyer upgrade possibilities as a function of the common discount factor, the length of the time period between successive price changes, and the quality levels of the goods. We establish that introducinga lower-quality good (or equivalently, damaging a good) works as a commitment device only if consumers holding a durable good cannot reenter the market. When a buyer can upgrade the product, we establish that for all parameter values the Coase conjecture survives.