Altan Basak

Damaged Durable Goods, Upgrades, andthe Coase Conjecture

Volume 174 () / Issue 4, pp. 743-765 (23)

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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.

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