The Micro-Foundations of Intertemporal Price Discrimination

• Main Author: KOH, Winston T. H.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2005
• Subjects: Intertemporal price discrimination; Durable good monopoly; Optimal pricing strategy; Household demand; Economic Theory; Finance
• Online Access: https://ink.library.smu.edu.sg/soe_research/823; https://ink.library.smu.edu.sg/context/soe_research/article/1822/viewcontent/IPD_Jan2005.pdf
• Institution: Singapore Management University

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.