Outside Options and the Failure of the Coase Conjecture
American Economic Review · 2014 · Volume 104 · Issue 2
Abstract
A buyer wishes to purchase a good from a seller who chooses a sequence of prices over time. Each period the buyer can also exercise an outside option, abandoning their search or moving on to another seller. We show there is a unique equilibrium in which the seller charges a constant price in every period equal to the monopoly price, contravening the Coase conjecture. We then embed the singleseller model into a search framework and show the result provides a foundation for the usual "no haggling" assumption.
Keywords
Bargaining Theory, Matching Theory, Market Structure and Pricing: Monopoly, Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection, Monopoly, Monopolization Strategies, Oligopoly and Other Imperfect Markets
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