Resumo WP n.º 18:
In this paper, we examine an infinite horizon model of upgrade goods where quality is exogenously increasing over time. We find that quality growth in a durable good market can actually lead to a reduction in market power and profits for a monopolist. We employ the simplest possible model needed to demonstrate this result. A monopolist generates a new quality increment in each period and he repeatedly faces the same consumers, all of whom have identical preferences. The monopolist can sell any set of feasible bundles in each period. For a quality increment to be useful to a consumer, he must own all previous quality increments as well -the upgrade payoff structure. posse. We find that in stationary, symmetric, subgame perfect equilibria, the seller’s payoff ranges from extracting the entire surplus to receiving only the single period flow value of each quality increment. Thus, we show that even in the case where all consumers are identical, and there is no standard reason for them to earn an information rent, quality growth and buyers who are always in the market can substantially vitiate the market power of the seller. Clearly, this result has policy consequences for many industries including the software industry.

Texto:
In section 2, we present the model. Benchmarks are generated in section 3 to help differentiate our work from the literature and to understand the implications of the model assumptions. We provide basic results in section 4, where we show that, in equilibrium, whenever a period has sale consumers always move to the current state of the art and purchase all feasible qualities that they do not possess. In section 5, we examine efficient equilibria in which the monopolist sells the upgrade in the first period that it is available. We show that the monopolist’s payoff can range from getting all the surplus to receiving only the single period flow value of each upgrade. In section 6, we show that equilibria can be inefficient in that the sale of upgrades are delayed. For inefficient equilibria, one needs to find approach conditions until there is a sale along with support conditions. We show that there is a critical discount factor, such that the longer the delay, the higher the discount factor must be. We offer conclusions in the final section. All proofs are in the appendix.