Elsevier

European Economic Review

Volume 40, Issue 2, February 1996, Pages 473-490
European Economic Review

Depreciation erodes the Coase Conjecture

https://doi.org/10.1016/0014-2921(95)00025-9Get rights and content

Abstract

If a durable good monopolist produces at constant marginal costs and the good depreciates, there exists a family of Strong Markov Perfect Equilibrium (SMPE). One member of this family entails instantaneous production of the level of stock produced in a competitive equilibrium; this is consistent with the Coase Conjecture. Other SMPE in the family entail steady-state production at a stock level lower than in the competitive equilibrium. There may be a jump to these steady states, or they may be approached asymptotically. Monopoly profits are positive in these equilibria, and the Coase Conjecture fails.

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