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Durable Goods, Commitment Power and Public Monopolies

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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.

Document Type: Research Article


Affiliations: University of Alaska

Publication date: December 1, 2003

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