Intertemporal Price Discrimination in Frictionless Durable Goods Monopolies

The author shows that small differences in quality and production costs between durables and nondurables in a product line allow a durable goods monopolist to intertemporally price discriminate even with continuous trading. In particular, a monopolist would want to both sell and rent out a durable to achieve price discrimination. This incentive to price discriminate simultaneously creates inefficient delay in the sale of the durable good, a finite trading period, and long-run efficiency of the market. The Coase conjecture fails because the nondurable good acts as an outside option that guarantees a minimum profit in the market for durables. Copyright 1998 by Blackwell Publishing Ltd