Choice of Product Variety for the Durable Goods Monopolist
Casado Izaga, Francisco Javier
Saracho de la Torre, Ana Isabel
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This paper analyzes the strategic choice of variety by a monopolist seller of a durable good as a means to mitigate his commitment problem. The monopolist chooses his product variety with a goal of ensuring that a strong reduction in future prices will not be profitable because it allows the firm to attract few additional consumers. The main result that emerges from considering product variety as an endogenous variable is that, contrary to the case in which it is exogenously determined, social welfare is always higher when the monopolist cannot commit that when he can.