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Intertemporal Price Discrimination in Frictionless Durable Goods Monopolies

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Abstract

I show that small differences in quality and production costs between durables and non-durables in a product line allow a durable goods monopolist to intertemporally price discriminate even with continuous trading. In particular, a monopolist would want to both sell and rent out a durable to achieve price discrimination. This incentive to price discriminate simultaneously creates inefficient delay in the sale of the durable good, a finite trading period and long run efficiency of the market. The Coase conjecture fails because the non-durable good acts as an outside option that guarantees a minimum profit in the market for durables.

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