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Durable Goods, Commitment Power and Public Monopolies
Author(s) -
Goering Gregory E.,
Pippenger Michael K.
Publication year - 2003
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1046/j.1467-9957.2003.00369.x
Subject(s) - durable good , monopoly , public good , subsidy , economics , product (mathematics) , microeconomics , product market , industrial organization , business , commerce , market economy , incentive , geometry , mathematics
Since many publicly owned firms manufacture a durable product we examine a simple two‐period, constant returns technology, durability choice monopoly model under public ownership. Various types of firm commitment ability are analyzed. The model suggests that many of the standard results of public ownership are not obtained when output is durable. Product durability is shown to be an important factor for public firm subsidization that is independent of the traditional economies of scale rationale. We show that this durable goods subsidization problem is due solely to the public firm's potential commitment problems with buyers.