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Depreciation erodes the Coase Conjecture

Authors
Publisher
Elsevier B.V.
Publication Date
Volume
40
Issue
2
Identifiers
DOI: 10.1016/0014-2921(95)00025-9
Keywords
  • Coase Conjecture
  • Depreciation
  • Multiple Markov Equilibria

Abstract

Abstract If a durable good monopolist produces at constant marginal costs and the good depreciates, there exists a family of Strong Markov Perfect Equilibrium (SMPE). One member of this family entails instantaneous production of the level of stock produced in a competitive equilibrium; this is consistent with the Coase Conjecture. Other SMPE in the family entail steady-state production at a stock level lower than in the competitive equilibrium. There may be a jump to these steady states, or they may be approached asymptotically. Monopoly profits are positive in these equilibria, and the Coase Conjecture fails.

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