The finite horizon, undiscounted, durable goods monopoly problem with finitely many consumers

Abstract

We study the uncommitted durable goods monopoly problem when there are finitely many consumers, a finite horizon, and no discounting. In particular we characterize the set of strong-Markov subgame perfect equilibria that satisfy the skimming property. We show that in any such equilibrium the profits are not less than static monopoly profits; and at most the static monopoly profits plus the monopoly price. When each consumer is small relative to the market, profits are then approximately the same as those of a static monopolist which sets a single price. Finally, we extend the equilibrium characterization to games with an arbitrary discount factor.