Professional Documents
Culture Documents
PacmanconjectureWikipedia,thefreeencyclopedia
Pacmanconjecture
FromWikipedia,thefreeencyclopedia
ThePacmanConjectureholdsthatdurablegoodsmonopolistshavecompletemarketpowerandsocanexerciseperfectpricediscrimination,thusextractingthetotalsurplus.[1]ThisisincontrasttotheCoaseConjecture
whichholdsthatadurablegoodsmonopolisthasnomarketpower,andsopriceisequaltothecompetitivemarketprice.
InaDecember1989journalarticle[2]MarkBagnoli,StephenW.Salant,andJosephE.Swierzbinskitheorizedthatifeachconsumercouldbereliedupontobuyagoodassoonasitspricedippedbelowacertainpoint
(withdifferentconsumersvaluinggoodsdifferently,butallpursuingthesame"getitwhileyoucan"strategy),thenamonopolistcouldsetpricesveryhighinitiallyandthen"eathiswaydownthedemandcurve,"
extractingmaximumprofitinwhatBagnolietal.called"thePacmanstrategy"afterthevoraciousvideogamecharacter.Specifically,Bagnolietal.statethat"Pacmanisasequentialbestreplytogetitwhileyoucan,"a
resulttheycall"thePacmanTheorem".Theirproof,however,reliesstronglyontheassumptionthatthereisaninfinitetimehorizon.
Contents
1 DurablegoodsmonopolistsandtheCoaseConjecture
2 DurablegoodsmonopolistsandthePacmanConjecture
3 DifferencesbetweenCoaseandPacmanconjectures
3.1 Pacmanconjecture
3.2 Coaseconjecture
4 References
5 Furtherreading
DurablegoodsmonopolistsandtheCoaseConjecture
Adurablegoodsmonopolistsellsgoodswhichareinfinitesupplyandwhichlastforever,(notdepreciatingovertime).AccordingtotheCoaseConjecture,suchamonopolisthasnomarketpowerasitisincompetition
withitselfthemoreofthegooditsellsinperiodonethelessitwillbeabletosellinfutureperiods.
Assumingmarginalcostsarezero.Inthefirstperiodthemonopolistwillproducequantity(Q1)wheremarginalcost=marginalrevenueandsoextractthemonopolysurplus.However,inthesecondperiodthemonopolist
willfaceanewresidualdemandcurve(QQ1)andsowillproducequantitywherethenewmarginalrevenueisequaltothemarginalcost,whichisatthecompetitivemarketprice.
Thereisthenanincentiveforconsumerstodelaypurchaseofthegoodastheyrealizethatitspricewilldecreaseovertime.Ifbuyersarepatientenoughtheywillnotbuyuntilthepricefallsandsodurablegoods
monopolistsfaceahorizontaldemandcurveattheequilibriumpriceandsowillhavenomarketpower.
DurablegoodsmonopolistsandthePacmanConjecture
ThePacmanConjectureontheotherhandholdsthatconsumersrealizethepriceofthegoodwillonlyfallwhentheypurchasethegood,therefore,apatientmonopolistcanexercisefullmarketpowerandperfectlyprice
discriminate.
Themonopolistsetsthepriceofthedurablegoodattimetequaltothehighestreservationpriceofaconsumerwhohasn'tpurchasedpriortothatpointt.Theconsumerthenbuysthegoodassoonasitisequaltotheir
reservationprice,astheyrealizepricewillnotfallfurtherunlesstheypurchaseit.(Bagnolietal.refertobuyersexhibitingthisbehavioras"typebuyers",or"buyersfollowingthegetitwhileyoucanstrategy".)
https://en.wikipedia.org/wiki/Pacman_conjecture
1/2
7/2/2016
PacmanconjectureWikipedia,thefreeencyclopedia
ThePacmanConjecturerequiresthatthemonopolisttohaveperfectinformationaboutconsumerreservationpricesandaninfinitetimehorizon.Thebuyersmustnotonlyfollowthegetitwhileyoucanstrategy,butalso
mustfaithfullybelievethatthemonopolistisfollowingaperfectPacmanstrategy(asotherwisetheywouldbetemptedtomatchpatiencewiththemonopolistinhopesofgettingabetterdeallater).Themonopolistwill
exercisefullmarketpoweroverthebuyersinthatpool,butwillnotbeabletoextractsimilarsurplusesfrombuyerswhocomeinfromoutside(forexample,thechildrenoftheoriginalbuyers)withoutdeviatingfromthe
purePacmanstrategy.
DifferencesbetweenCoaseandPacmanconjectures
Pacmanconjecture
Patientmonopolist(discountfactorgreaterthanorequalto0.5),
finitesetofbuyers,
infinitetimehorizon,
monopolistshavemaximummarketpower,
monopolistsperfectlypricediscriminate.
Coaseconjecture
Patientbuyers(discountfactorgreaterthanorequalto0.5),
nonatomicbuyers,
infinitetimehorizon,
reservationpricesarecontinuous,
monopolistshavenomarketpower,
priceisequaltotheperfectlycompetitivepriceequilibrium.
References
1.CoaseversusPacman:WhoEatsWhomintheDurableGoodsMonopoly?Author(s):NilsHenrikMorchvonderFehrandKaiUweKuhnSource:TheJournalofPoliticalEconomy,Vol.103,No.4,(Aug.,1995),pp.785812Published
by:TheUniversityofChicagoPress
2.Bagnoli,M.,Salant,S.W.,&Swierzbinski,J.E."DurableGoodsMonopolywithDiscreteDemand".TheJournalofPoliticalEconomy,97.6(December1989),pp.14591478.(JSTOR(http://www.jstor.org/discover/10.2307/1833248))
Furtherreading
1.Church,J.&Ware,R:IndustrialOrganizationAStrategicApproachp141145
2.NilsHenrikMorchvonderFehr&KaiUweKuhn:CoaseversusPacman:WhoEatsWhomintheDurableGoodsMonopoly?TheJournalofPoliticalEconomy,Vol.103,No.4(Aug.,1995),pp.785812[1]
(http://www.jstor.org/stable/2138582)
Retrievedfrom"https://en.wikipedia.org/w/index.php?title=Pacman_conjecture&oldid=690255008"
Categories: Anticompetitivebehaviour Monopoly(economics) Pricing
Thispagewaslastmodifiedon12November2015,at06:22.
TextisavailableundertheCreativeCommonsAttributionShareAlikeLicenseadditionaltermsmayapply.Byusingthissite,youagreetotheTermsofUseandPrivacyPolicy.Wikipediaisaregistered
trademarkoftheWikimediaFoundation,Inc.,anonprofitorganization.
https://en.wikipedia.org/wiki/Pacman_conjecture
2/2