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Essay / Research Paper Abstract
This 3 page paper explains the commitment problem faced by the monopolist of a durable good and looks at how renting or leasing the product be a solution to the problem. The bibliography cites 3 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEmoncommit.rtf
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Unformatted sample text from the term paper:
terms of consumer commit, this was argued in a seminal article by Coarse (1972). In effect the firm is competing against its future self in terms of the comparison which
is made by the consumers. A number of theorist note that there are specific problems associated with durable goods that are not associated with non durable goods (Burlow, 1982;
Stokey, 1981). The key with durable goods it that they will last over a period of time, and as such the consumers can delay a purchase extending the period
of life of an existing product or simply delaying a purchase. This means, that unlike other goods the demand for durable goods is linked over time. The monopolist also
faces some difficult decision in terms of supply and the level of supply. If there is a high level of supply today, this may result in a decrease demand in
the next time period due to the life of the durable good over several time periods. The reaction to a decline demand is usually to lower process to increase the
level of demand inline with supply and demand relationships (Nellis and Parker, 2000). If a consumer believes that there is the potential for the price to fall then they
may choose to wait until the price falls, they do not want to commit themselves to a purchase at a higher price, therefore, the perception of a price cut is
a potential incentive to wait. The level of the incentive will depend on a number of factors, such as the perceived level of the price decrease as well as other
factors such as the utility and advantages as well as disadvantages of an immediate purchase compared to a delay. From this it may be argued that there may be benefits
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