Coase Conjecture Research Articles

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

AbstractOne of the most famous and outstanding formalizations of the Coase Conjecture is by Gul et al. (J Econ Theory 39(1):155–190, 1986. https://doi.org/10.1016/0022-0531(86)90024-4) peculiarity of their model—as well as nearly all other examinations of the Coase Conjecture, 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 et. al. 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.

Urban bias in political tournaments in China: Implications for urban land markets

This paper studies the applicability and implications of the political tournament model in Chinese cities by arguing that there is urban bias in political tournaments, especially in prefecture-level cities. Urban district leaders have to cooperate more and compete less than their counterparts in counties. The implication is that the percentage of urban districts is positively associated with monopolistic behavior of local government. Based on land leasing data of 290 prefecture-level cities from 2004 to 2014 (except 2012), it is found that the percentage of districts is positively associated with the speed of land price decline in leases through tender, auction and listing (TAL). This result supports the urban bias hypothesis in the context of the Coase Conjecture. It is also found that the total number of districts or population size is negatively associated with the speed of land price decline.

Optimal mechanism for the sale of a durable good

A buyer wishes to purchase a durable good from a seller who in each period chooses a mechanism under limited commitment. The buyer's value is binary and fully persistent. We show that posted prices implement all equilibrium outcomes of an infinite‐horizon, mechanism‐selection game. Despite being able to choose mechanisms, the seller can do no better and no worse than if he chose prices in each period, so that he is subject to Coase's conjecture. Our analysis marries insights from information and mechanism design with those from the literature on durable goods. We do so by relying on the revelation principle in Doval and Skreta (2022).

Smart Contracts and the Coase Conjecture

This paper reconsiders the problem of a durable-good monopolist who cannot make intertemporal commitments. The buyer’s valuation is binary and his private information. The seller has access to dynamic contracts and, in each period, decides whether to deploy the previous period’s contract or to replace it with a new one. The main result of the paper is that the Coase conjecture fails: the monopo-list’s payoff is bounded away from the low valuation irrespective of the discount factor. (JEL D42, D82, D86, L12)

A Test of the Coase Conjecture Using Prices of Online Books

A Test of the Coase Conjecture Using Prices of Online Books

Fairness and the Coase conjecture

If a buyer has a private value for a good and a seller can make repeated offers to her over an infinite time horizon, the Coase conjecture predicts the good is sold almost immediately at the buyer’s lowest valuation when players are patient (they discount future payoffs only slightly relative to payoffs today). Initial prices are lower when players are more patient. However, experimental studies of this setting find considerable inefficient delay, with much higher initial seller prices that increase with players’ patience. In this paper, I show how preferences for fairness help explain those findings. They make the seller’s payoff from agreement depend on the buyer’s value, creating an adverse selection problem. If the seller strongly dislikes selling to a high value buyer at a low price, the unique equilibrium features high initial prices which fall only slowly, if at all, to a price acceptable to a low value buyer; initial prices can increase with players’ patience.

An experimental test of the Coase conjecture: Fairness in dynamic bargaining

AbstractWe conduct a novel experimental test of the Coase conjecture based on subjects' privately known preferences for fairness. In an infinite horizon bargaining game, a proposer proposes a division of chips, until a responder accepts. When players are patient, the Coase conjecture predicts almost immediate agreement on equal monetary payoffs given any possibility a responder will not accept anything less. Behavior closely matches theory. In particular, when chips are worth more to proposers than responders, initial offers, minimum acceptable offers, responder payoffs, and efficiency are significantly larger in infinite horizon games than ultimatum games, and proposer payoffs are significantly smaller.

Local governments as land monopolists in Chinese cities: a natural experiment of Coase Conjecture in urban land

Local governments as land monopolists in Chinese cities: a natural experiment of Coase Conjecture in urban land

Innovation Incentives in the Pharmaceutical Sector: Rethinking Competition and Public Policy?

The incentives of pharmaceutical companies to innovate and how competition affects these incentives has been topical in recent years: for the general public, as evidenced by a patent race at an unprecedented pace during the ongoing Coronavirus disease 2019 (COVID-19) pandemic; and more specifically for competition authorities, as demonstrated for example by the role innovation played in the assessment of the Bayer/Monsanto (2018), Dow/DuPont (2017), and the Novartis/GSK (2015) mergers. This article contributes to the innovation debate, notably in the pharmaceutical industry, by giving an overview on firm and market-level incentives to carry out research and development (R&D). Understanding these innovation incentives is relevant for a proper competition assessment where the effect of a particular conduct or structural change on these incentives is considered, but also more generally in the context of public policy or regulatory questions. We review the fundamental elements driving innovation incentives and tentatively relate these to the development of new drugs for neurodegenerative diseases (NDD), in particular Parkinson’s disease (PD) and Alzheimer’s disease (AD). Health Economics, Pharmaceutical Products, Innovation, R&D, Information Asymmetry, Coase Conjecture, Replacement Effect, Patent Race, Neurodegenerative Diseases, Parkinson’s Disease, Alzheimer’s Disease

Quality Differentiation in Durable Goods Monopoly Always Yields Strictly Positive Profits

A monopolist producing vertically differentiated durable goods can offer in each period a sequence of price-quality menus to segment the market. We show that, contrary to the Coase conjecture for the homogeneous durable good monopoly, thanks to the ability to produce differentiated durable goods, in all Markov-Perfect Equilibria, the profit of a monopolist that cannot commit to future price-quality menus is bounded below by a strictly positive value independent of the discount factor.

Uncertain Commitment Power in a Durable Good Monopoly

This paper considers dynamic pricing strategies in a durable good monopoly model with uncertain commitment power to set price paths. The type of the monopolist is private information of the firm and not observable to consumers. If commitment to future prices is not possible, the initial price is high in equilibrium, but the firm falls prey to the Coase conjecture later to capture the residual demand. The relative price cut is increasing in the probability of commitment as buyers anticipate that a steady price is likely and purchase early. Pooling in prices may occur for perpetuity if commitment is suciently weak. Polling for innity is also preserved if committing to a high price is endogenously chosen by the firm.

Who Finances Durable Goods and Why It Matters: Captive Finance and the Coase Conjecture

ABSTRACTWe propose that, by financing their own product sales through captive finance subsidiaries, durable goods manufacturers commit to higher resale values for their products in future periods. Using data on captive financing by the manufacturers of heavy equipment, we find that captive‐backed models have lower price depreciation. The evidence is consistent with captive finance helping manufacturers commit to ex‐post actions that support used machine prices. This, in turn, conveys higher pledgeability for captive‐backed products, even for individual machines financed by banks. Although motivated as a rent‐seeking device, captive financing generates positive spillovers by relaxing credit constraints.

A Simple Experimental Test of the Coase Conjecture: Fairness in Dynamic Bargaining

We conduct a novel experimental test of the Coase conjecture using subjects' private information about preferences for fairness. In an infinite horizon bargaining game, a proposer proposes a division of chips, until a responder accepts. Given private information about fairness preferences and patient players, the Coase conjecture predicts almost immediate agreement on equal payoffs. We test this for two different chip-to-money exchange rates, and compare outcomes to ultimatum games. Behavior closely matches theory. In particular, when chips are worth more to proposers than responders, initial offers, minimum acceptable offers, responder payoffs and efficiency are significantly larger in the infinite horizon.

Optimal Waste Disposal Fees When Product Durability is Endogenous: Accounting for Planned Obsolescence

Considering the Coase conjecture (J Law Econ 15:143–149, 1972), we explore the optimal disposal fee of solid waste through the choice of product durability by a producer. We find that introducing a disposal fee curbs planned obsolescence and increases product durability. This increased durability decreases the social cost of waste and increases the service flow from the durable product. Therefore, the optimal disposal fee is higher than the Pigouvian level in the closed-loop.

Damaged Durable Goods, Upgrades, andthe Coase Conjecture

This study analyzes a damaged-goods market for a perfectly durable good in an infinite-horizon, discrete-time game. We characterize Markov perfect equilibria of this game under different buyer upgrade possibilities as a function of the common discount factor, the length of the time period between successive price changes, and the quality levels of the goods. We establish that introducing a lower-quality good (or equivalently, damaging a good) works as a commitment device only if consumers holding a durable good cannot reenter the market. When a buyer can upgrade the product, we establish that for all parameter values the Coase conjecture survives.

Damaged Durable Goods, Upgrades, and the Coase Conjecture

Damaged Durable Goods, Upgrades, and the Coase Conjecture

Differentiated Durable Goods Monopoly: A Robust Coase Conjecture

Differentiated Durable Goods Monopoly: A Robust Coase Conjecture

A Coasian Solution to Problems of Initial Acquisitions

This article extends the Coase Conjecture to ethical issues of initial acquisitions of property rights. The Coase Conjecture complements the Lockean labour-mixing criterion to limit the boundaries of morally legitimate initial acquisitions of unowned property; whenever the Coase Conjecture applies, the Lockean Proviso that there be “enough and as good” left is automatically satisfied. This holds provided that, when a claim is made, the marginal willingness to pay for the last portion of it is zero (infra-marginally, willingness to pay may be arbitrarily high). Thus, the market price of the claim is zero, except for the part of it that the claimant inhabits or improves. “Excessive” claims therefore come to have a zero market price, so anyone may take possession of them, by purchase or theft. In either case they must compensate the original claimant by a zero amount. It follows that non-claimants do not lose by putatively “excessive” grabs by claimants. This article argues that any initial claims are just under these circumstances.

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

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.

Durable goods monopoly with stochastic costs

I study the problem of a durable good monopolist who lacks commitment power and whose marginal cost of production varies stochastically over time. Time-varying costs modify the results on the Coase conjecture. When the distribution of consumer valuations is discrete, the monopolist is able to exercise market power and the market outcome is ine¢ cient. In contrast, with a continuum of types the monopolist is unable to extract additional rents from buyers with higher valuations. Moreover, the market outcome is …rst best e¢ cient in this setting: the monopolist serves consumers sequentially as costs decrease, precisely at the point in time that maximizes total surplus. The model is set up in continuous time and the monopolist’s marginal cost evolves as a � :