Econometrica: May, 1989, Volume 57, Issue 3

Reputation in Bargaining and Durable Goods Monopoly

https://doi.org/0012-9682(198905)57:3<511:RIBADG>2.0.CO;2-1
p. 511-531

Lawrence M. Ausubel, Raymond J. Deneckere

This paper analyzes durable goods monopoly in an infinite-horizon, discrete-time game. We prove that, as the time interval between successive offers approaches zero, all seller payoffs between zero and static monopoly profits are supported by subgame perfect equilibria. This reverses a well-known conjecture of Coase. Alternatively, one can interpret the model as a sequential bargaining game with one-sided incomplete information in which an uniformed seller makes all the offers. Our folk theorem for seller payoffs equally applies to the set of sequential equilibria of this bargaining game.