Effect of disutility on prices together with income changes in the context of a durable goods monopoly

P. Maçãs, Nunes (2009) Effect of disutility on prices together with income changes in the context of a durable goods monopoly. Acta Oeconomica, 59 (2). pp. 207-229. ISSN 0001-6373

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Abstract

In this article, we study the effect of disutility of consumers who do not buy certain durable goods at the present time with income variations on the behaviour over time of prices in the context of a Durable Goods Monopoly facing a continuous demand. If consumers do not foresee future changes in their income, price always decreases. However, greater disutility contributes to softening the price fall in the present, never reaching marginal cost at that moment. Consumers’ perspective for future changes to income has two major implications: 1) the durable goods monopoly, depending on disutility, can set a price equal to marginal cost at the present time if the perspective is for income growth in the future, something which never happens if reduced income is foreseen; and 2) it increases the tendency of a rise in price depending on disutility. We conclude that a price rise may be obtained for quite small disutility when the predicted increase in income is moderate and for moderate disutility, when the predicted increase in income is high.

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