The Coase Conjecture When the Monopolist and Customers Have Different Discount Rates

Abstract

One of the most famous and outstanding formalizations of the Coase Conjecture is that by Gul, Sonnenschein, and Wilson (1986). A peculiarity of their model — as well as all other examinations of the Coase Conjecture of which I am aware, including that by Coase himself — is that it assumes that the monopolist and customers have the same discount rate. I re-examine their model, while relaxing this restriction. Gul, Sonnenschein, and Wilson show that, if the (common) discount rate of the monopolist and customers approaches one, then the Coase Conjecture follows. I show that one only needs the discount rate of the customers to approach one for this to be true. I also show a second result: If the customers’ discount rate is fixed at a value less than one while the monopolist’s discount rate approaches one, then the Coase Conjecture is guaranteed not to follow.