Intertemporal Price Discrimination in Frictionless Durable Goods Monopolies

Abstract

I show that small differences in quality and production costs between durables and non‐durables in a product line allow a durable goods monopolist to intertemporally price discriminate even with continuous trading. In particular, a monopolist would want to both sell and rent out a durable to achieve price discrimination. This incentive to price discriminate simultaneously creates inefficient delay in the sale of the durable good, a finite trading period and long run efficiency of the market. The Coase conjecture fails because the non‐durable good acts as an outside option that guarantees a minimum profit in the market for durables.