Definitions, Assumptions and Basic Model

Abstract

Before analyzing environmental policy for consumer durables, it proves helpful to introduce some basic concepts. In this chapter, we therefore present and discuss definitions, assumptions and mathematical tools which are required in the subsequent chapters. More specifically, Sect. 2.1 clarifies the difference between durable and nondurable consumption goods (Sect. 2.1.1) and shows how a durable good (Sect. 2.1.2) and different vintages of a durable good (Sect. 2.1.3) may be modeled. Section 2.2 uses these modeling concepts and introduces a basic oligopoly model without environmental pollution. The model is mainly presented for technical purposes. Section 2.2.1 describes the model, develops a durable good oligopoly game and derives the market equilibrium. Section 2.2.2 clarifies how to formalize the stationary state of the market equilibrium. Section 2.2.3 carries out a comparative static analysis of the long run market equilibrium and, in doing so, discusses and clarifies different procedures used in previous durable good studies.