Coasian Dynamics with Free Disposability and Zero Marginal Cost: Information Goods

TL;DR

This paper analyzes a durable goods monopoly with free disposability and zero marginal cost, showing how these features create multiple equilibria and challenge traditional Coase conjecture predictions.

Contribution

It establishes a Folk-Theorem-type result for such markets, highlighting the impact of free disposability and zero marginal cost on equilibrium outcomes.

Findings

Equilibrium payoffs form an interval bounded by efficient surplus and static payoff.

Multiple provision levels arise due to non-uniqueness caused by free disposability.

Structural features of information goods can undermine the Coase conjecture.

Abstract

This paper studies a durable goods monopoly with multiple provision levels, free disposability, and zero marginal cost. We establish a Folk-Theorem-type result: as parties become sufficiently patient, equilibrium seller payoffs contains an interval bounded below by the lowest-type buyer's efficient surplus and above by the maximal static payoff under incentive-compatible mechanisms guaranteeing that type efficient provision. This multiplicity arises because free disposability and zero marginal cost render the efficient provision level non-unique. Our analysis demonstrates how structural features common in information goods can undermine the Coase conjecture.