### Abstract

A key to the Coase conjecture is the monopolist's inability to commit to a price, which leads consumers to believe that a high current price will be followed by low future prices. This paper studies the robustness of the Coase conjecture with respect to these beliefs of consumers. In particular, there is uncertainty over whether the monopolist is committed to a price (i.e. she may be a commitment type). Consequently, consumers are no longer certain that the price will change over time. I consider two kinds of commitment types. A behavioral commitment type charges an exogenously given price, while the rational commitment type optimally chooses a price. I show that the Coase conjecture is robust with regard to uncertainty over the monopolist's commitment. When the probability of behavioral types is sufficiently small, as in the original Coase conjecture, the monopolist earns the competitive profit. When the probability of behavioral types is positive, unlike in the original Coase conjecture, there is positive delay. But the delay disappears as the probability approaches zero. When the commitment type is rational, unless the probability of the commitment type is sufficiently high, both normal and committed monopolists charge the competitive price, and thus there is no delay.

Original language | English (US) |
---|---|

Pages (from-to) | 17-44 |

Number of pages | 28 |

Journal | Theoretical Economics |

Volume | 4 |

Issue number | 1 |

State | Published - Apr 20 2009 |

Externally published | Yes |

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### Keywords

- Coase conjecture
- Rational commitment
- Reputational bargaining

### ASJC Scopus subject areas

- Economics, Econometrics and Finance(all)

### Cite this

**The Coase conjecture with incomplete information on the monopolist's commitment.** / Kim, Kyungmin.

Research output: Contribution to journal › Article

*Theoretical Economics*, vol. 4, no. 1, pp. 17-44.

}

TY - JOUR

T1 - The Coase conjecture with incomplete information on the monopolist's commitment

AU - Kim, Kyungmin

PY - 2009/4/20

Y1 - 2009/4/20

N2 - A key to the Coase conjecture is the monopolist's inability to commit to a price, which leads consumers to believe that a high current price will be followed by low future prices. This paper studies the robustness of the Coase conjecture with respect to these beliefs of consumers. In particular, there is uncertainty over whether the monopolist is committed to a price (i.e. she may be a commitment type). Consequently, consumers are no longer certain that the price will change over time. I consider two kinds of commitment types. A behavioral commitment type charges an exogenously given price, while the rational commitment type optimally chooses a price. I show that the Coase conjecture is robust with regard to uncertainty over the monopolist's commitment. When the probability of behavioral types is sufficiently small, as in the original Coase conjecture, the monopolist earns the competitive profit. When the probability of behavioral types is positive, unlike in the original Coase conjecture, there is positive delay. But the delay disappears as the probability approaches zero. When the commitment type is rational, unless the probability of the commitment type is sufficiently high, both normal and committed monopolists charge the competitive price, and thus there is no delay.

AB - A key to the Coase conjecture is the monopolist's inability to commit to a price, which leads consumers to believe that a high current price will be followed by low future prices. This paper studies the robustness of the Coase conjecture with respect to these beliefs of consumers. In particular, there is uncertainty over whether the monopolist is committed to a price (i.e. she may be a commitment type). Consequently, consumers are no longer certain that the price will change over time. I consider two kinds of commitment types. A behavioral commitment type charges an exogenously given price, while the rational commitment type optimally chooses a price. I show that the Coase conjecture is robust with regard to uncertainty over the monopolist's commitment. When the probability of behavioral types is sufficiently small, as in the original Coase conjecture, the monopolist earns the competitive profit. When the probability of behavioral types is positive, unlike in the original Coase conjecture, there is positive delay. But the delay disappears as the probability approaches zero. When the commitment type is rational, unless the probability of the commitment type is sufficiently high, both normal and committed monopolists charge the competitive price, and thus there is no delay.

KW - Coase conjecture

KW - Rational commitment

KW - Reputational bargaining

UR - http://www.scopus.com/inward/record.url?scp=64549136278&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=64549136278&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:64549136278

VL - 4

SP - 17

EP - 44

JO - Theoretical Economics

JF - Theoretical Economics

SN - 1555-7561

IS - 1

ER -