DURABLE GOODS MONOPOLY WITH INCOMPLETE INFORMATION

This article reconsiders the durable goods monopoly problem when the monopolist's marginal cost is private information. We show that the Coase Conjecture implies the No Trade Theorem: In any equilibrium in which the lowest-cost seller's initial offer approaches her marginal cost, the aggregate probability of trade must vanish. However, we also construct non-Coasean equilibria which approximate the unique outcome of the rental version of the same model. These (stationary) equilibria are comparatively efficient. The results are equally applicable to the mathematically-equivalent problem of sequential bargaining with two-sided incomplete information where one party makes all the offers.