Time-Differentiated Monopolies

Igal Milchtaich, Amihai Glazer and Refael Hassin

Abstract

We consider sequential competition among sellers, with different consumers desiring the good at different times. Each consumer could buy from a later seller. Each seller recognizes that future sellers are potential competitors, and therefore does not necessarily set his monopoly price, which is the price he would set if consumers could only buy from the first seller they encounter. We show, however, that whether an equilibrium price is indeed lower than the monopoly price of each seller depends on the form of consumers’ impatience. With time discounting, this is so. But when impatience reflects decreasing valuations, the equilibrium price may (and, in certain cases, must) coincide with the sellers’ monopoly prices, which means that their market power is not diminished by competition with future sellers. Even in this case, however, prices below the monopoly price may exist if sellers are aware of the history of sales and may react to previous price changes.

JEL classification

C73; D91; L13

Keywords

Sequential competition; Imperfect markets; Intertemporal consumer choice