The Micro-foundations of Intertemporal Price Discrimination

Winston T.H. Koh
JEL codes: 
Paper No. 04-2005

This paper investigates the optimality of intertemporal price discrimination for a durable-good monopoly in a model where infinitely-lived households face an intertemporal budget constraint, and consume both durable goods and non-durable
goods. We prove that the optimal price of the durable good is not constant, and may decrease or increase over time. Some households may choose to purchase the durable good at a later date, and pay lower or higher prices, since the gain in
discounted utility of consuming more of the non-durable good more than compensates for the loss in utility from delaying the consumption of the durable good.