Business Services Industry
Durable goods oligopoly with innovation: theory and empirics
Survey of Current Business, March, 2008
Ronald Goettler (Carnegie Mellon) and Brett Gordon (Columbia). Discussant: Ana Aizcorbe.
This paper proposes a model of dynamic oligopoly and applies it to the microprocessor industry. Our findings highlight the "competing-with-itself" aspect of being a monopolist of a durable good: the monopolist must innovate to stimulate demand through upgrades. The benefit is higher for the monopolist because its substantial pricing power enables it to extract much of the innovation-generated surplus. We also show that prices and profits are much higher when firms correctly account for the dynamic nature of demand, compared with an alternative scenario in which they ignore the effect of current prices on demand. Finally, equilibrium prices, profits, innovation, and consumer surplus are all increasing in the consumer's discount factor. Higher discount factors imply higher discounted flow utility from the durable good, which raises the consumer's willingness-to-pay.
Most Recent Business Articles
- Multiple criteria evaluation and optimization of transportation systems
- Multi-criteria analysis procedure for sustainable mobility evaluation in urban areas
- A two-leveled multi-objective symbiotic evolutionary algorithm for the hub and spoke location problem
- Multi-criteria analysis for evaluating the impacts of intelligent speed adaptation
- The development of Taiwan arterial traffic-adaptive signal control system and its field test: a Taiwan experience
Most Recent Business Publications
Most Popular Business Articles
- 7 tips for effective listening: productive listening does not occur naturally. It requires hard work and practice - Back To Basics - effective listening is a crucial skill for internal auditors
- FAS 109: a primer for non-accountants - Financial Accounting Standards Board's "Statement 109: Accounting for Income Taxes"
- Design a commission plan that drives sales - Sales Commissions
- Too Young to Rent a Car? - 25-years-old the minimum age for car renting - Brief Article
- Getting the global view: Nestle, led by Peter Brabeck-Letmathe, climbs to the #1 spot in this year's Best Companies for Leaders


