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The optimal suppression of a low-cost technology by a durable-good monopoly

  • Author(s): Karp, Larry
  • Perloff, Jeffrey M
  • et al.
Abstract

If a durable-good monopoly can use either of two technologies whose properties are known to consumers, the monopoly uses only the technology with the lowest average cost at low levels of production. If consumers only know about technologies in use, the monopoly may use an inferior technology initially to increase its profits, keeping the new, efficient technology secret and switching later. Thus, in either case, an inferior technology may be used; however, switching between technologies occurs only if consumers are not fully informed about both technologies.

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