DURABLE GOODS MONOPOLY, LEARNING BY DOING AND THE COASE CONJECTURE

The Coase conjecture states that if a durable-goods monopolist can make offers to sell arbitrarily frequently, then in equilibrium she will charge the competitive price, and the market will be saturated quickly. This conjecture is shown to be refuted when production of the durable good is subject to learning by doing: For the linear case it is shown that there exist a stationary-strategy perfect equilibrium in which the monopolist charges competitive prices, but the market is saturated slowly. An interesting analogy between bargaining and durable-goods monopoly with learning by doing is also pointed out.