Abstract: I analyze a vertically differentiated market for an imperfectly durable good served by a monopolist in an infinite horizon, discrete time game. I characterize Markov perfect equilibria of this game as a function of the common discount rate, the common depreciation rate of the goods, the length of the time period between successive price changes and the quality levels of the goods. I establish that there exist three types of Markov perfect equilibria: a Coase Conjecture equilibrium, a monopoly equilibrium, and a reputational equilibrium. For sufficiently low depreciation rates, the unique equilibrium is the Coase Conjecture equilibrium. For sufficiently high depreciation rates, the unique equilibrium is the monopoly equilibrium. For intermediate values of the depreciation rate, all three types of equilibria exist. In the reputational equilibrium, the monopolist cuts the production of the high quality good to create a reputation of pricing high. The reputational steady state quantity of the high quality good falls short of the monopoly quantity of the high quality good. I prove that the set of parameters supporting the Coase Conjecture equilibrium is smaller and the set of the parameters supporting the monopoly equilibrium is larger when the monopolist can produce a lower quality good. Hence, my study establishes that quality differentiation alleviates the time inconsistency problem a durable goods monopolist faces and suggests that when the innate durability of a good is high, the monopolist will damage a portion of the goods and produce a lower quality good to credibly commit to high future prices for the higher quality good.

Abstract: I study the strategic allocation of campaign funds for political advertising in sequential elections. Elections with sequential voting, such as presidential primaries, are widely thought to feature social learning and momentum effects, where the choices of early voters influence later voters since early voters can partially convey the content of their information to later voters through their votes. One of the central questions about American presidential nominations concerns the effects of candidate spending on the outcomes of primaries and caucuses. I extend Coate’s (2004) model into a model of sequential elections to study how candidates allocate campaign funds when social learning is possible. My preliminary results show that campaign advertising is crucial in early stages and in close races, and that candidates can trigger social learning and momentum by heavily investing in advertisement in early stages.