Product Line Decisions and the Coase Conjecture

RAND JOURNAL OF ECONOMICS, Vol. 27, No. 2

Posted: 19 May 1998

See all articles by Kai-Uwe Kuhn

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

Jorge Padilla

Compass Lexecon

Abstract

We show in this article that the Coase conjecture does not hold when a durable goods monopolist also sells nondurable goods that are demand-related to the durable ones. The presence of nondurable complements or substitutes reduces the rate at which the monopolist introduces the durable good into the market. The price of the durable good does not converge to marginal cost. We analyze the incentives of a monopolist to extend his product line to a durable or a nondurable good. Most significantly the profit from adding a durable good to the product line disappears as the time between offers becomes short. We study the effects of entry into markets for nondurable goods and their implications for merger policy.

JEL Classification: L12, D42

Suggested Citation

Kuhn, Kai-Uwe and Padilla, Jorge, Product Line Decisions and the Coase Conjecture. RAND JOURNAL OF ECONOMICS, Vol. 27, No. 2, Available at SSRN: https://ssrn.com/abstract=4024

Kai-Uwe Kuhn (Contact Author)

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

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