Pacman Conjecture - Durable-goods Monopolists and The Pacman Conjecture

Durable-goods Monopolists and The Pacman Conjecture

The Pacman Conjecture on the other hand holds that consumers realize the price of the good will only fall when they purchase the good, therefore, a patient monopolist can exercise full market power and perfectly price-discriminate.

The monopolist sets the price of the durable good at time t equal to the highest reservation price of a consumer who hasn't purchased prior to that point t. The consumer then buys the good as soon as it is equal to their reservation price, as they realize price will not fall further unless they purchase it. (Bagnoli et al. refer to buyers exhibiting this behavior as "type ℓ buyers", or "buyers following the get-it-while-you-can strategy".)

The Pacman Conjecture requires that the monopolist has access to a large (yet finite) pool of type ℓ buyers, perfect information about their respective reservation prices, and zero fixed costs. The buyers must not only follow the get-it-while-you-can strategy, but also must faithfully believe that the monopolist is following a perfect Pacman strategy (as otherwise they would be tempted to match patience with the monopolist in hopes of getting a better deal later). The monopolist will exercise full market power over the buyers in that pool, but will not be able to extract similar surpluses from buyers who come in from outside (for example, the children of the original buyers) without deviating from the pure Pacman strategy.