American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Outside Options and the Failure of the Coase Conjecture
American Economic Review
(pp. 656–71)
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.Citation
Board, Simon, and Marek Pycia. 2014. "Outside Options and the Failure of the Coase Conjecture." American Economic Review 104 (2): 656–71. DOI: 10.1257/aer.104.2.656Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D42 Market Structure and Pricing: Monopoly
- D43 Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
- L12 Monopoly; Monopolization Strategies
- L13 Oligopoly and Other Imperfect Markets