The Tesla Model III Will Offer a Clean Test of the Coase Conjecture

It has been reported that a $35,000 Tesla make will be sold in the year 2017.  How will the expectation that you can buy this make in the medium term affect the pricing of Tesla vehicles today?   The Coase Conjecture would predict that Tesla will have to drop its prices today if these two makes are close substitutes.  Whether they are close substitutes is an empirical question but I can offer one data point. I was preparing to buy a Tesla but I now plan to wait and buy the $35,000 version in 3 years.    Am I typical?

What is the Coase Conjecture?  These slides provide an answer;

"In the paper “Durability and Monopoly,” Nobel Laureate Ronald Coase proposes the startling
hypothesis that the monopoly seller of a durable good will tend to price at marginal cost, absent
some mechanism for committing to withhold supply. (Such mechanisms include leasing rather
than selling, planned obsolescence, increasing marginal cost (which makes delay rational), and
promises to repurchase at a fixed price.) The logic takes three steps. First, having sold the
monopoly quantity at the monopoly price, the seller would like to sell a bit more, because the
seller need not cut price on units already sold. Second, consumers will rationally anticipate such
price cuts, and thus will hold out for future prices. Third, if the seller can change prices
sufficiently fast, the path must go to marginal cost arbitrarily quickly, that is, the price will be
marginal cost. This idea came to be known as the Coase conjecture.

Essentially the Coase conjecture holds that a monopolist compete with future incarnations of
himself. Even though the most profitable course of action is to sell the monopoly quantity
immediately, and then never sell again, the monopolist cannot resist selling more once the
monopoly profit is earned. That is, subgame perfection condemns the monopolist to low profits."

Read More... [Source: Environmental and Urban Economics]