The Micro-Foundations of Intertemporal Price Discrimination

This paper investigates the optimality of intertemporal price discrimination for a durable-good monopoly in a model where infinitely-lived households face an intertemporal budget constraint, and consume both durable goods and non-durable goods. We prove that the optimal price of the durable good is...

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Bibliographic Details
Main Author: KOH, Winston T. H.
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2006
Subjects:
Online Access:https://ink.library.smu.edu.sg/soe_research/402
https://ink.library.smu.edu.sg/context/soe_research/article/1401/viewcontent/SMU_Koh_2005_02.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:This paper investigates the optimality of intertemporal price discrimination for a durable-good monopoly in a model where infinitely-lived households face an intertemporal budget constraint, and consume both durable goods and non-durable goods. We prove that the optimal price of the durable good is not constant, and may decrease or increase over time. Some households may choose to purchase the durable good at a later date, and pay lower or higher prices, since the gain in discounted utility of consuming more of the non-durable good more than compensates for the loss in utility from delaying the consumption of the durable good. [ABSTRACT FROM AUTHOR]