The final research seminar of the ISEG Research Seminars '25 cycle will be held on 4 June, from 13.00 to 14.00, in ISEG's Lecture Theatre 3 (Quelhas, 4th Floor).
The seminar's keynote speaker Peter Kort, from Tilburg University (The Netherlands), will present the paper on "Investment under Uncertainty in a Durable Good Market", the abstract for which can be found below.
The 2nd Semester Research seminars are held weekly, with the participation of professors from ISEG and other Portuguese and international schools. Further information HERE.
Free admission, subject to room capacity.
Abstract
We consider a monopolistic firm to be one that decides on the timing and production capacity for introducing a durable good into a market characterised by consumer heterogeneity and project value uncertainty. We show that when consumers are less heterogeneous, the firm should invest later, i.e. wait for product attractiveness to grow to a sufficiently high level, in a large production capacity. In case consumers are very heterogeneous, the firm should invest early in a small production capacity. In the latter case, selling the durable good in small quantities enables the firm to price discriminately over time, generating a high payoff. It follows that in an economic environment where it is optimal for the firm to invest early in a small capacity, i.e. when the trend and volatility of the project value is low, the firm's payoff is higher than when consumer preferences are more heterogeneous. On the other hand, in an economic environment where it is optimal for the firm to invest late in a large capacity, i.e. when the trend and volatility are high, the firm prefers more homogeneous consumer preferences. The fact that an increase in consumer heterogeneity may have a positive effect on the firm value distinguishes the durable goods case from market settings with non-durable products.