The Pacman conjecture states that the optimal strategy for monopolistic durable goods manufacturers is to set price high and slowly drop it (i.e. eating their way down the demand curve).

Empirically this seems to hold as it's the strategy employed by virtually all intellectual property producers (book publishers, movies, video games, software, etc). Microsoft has gone so far as to charge over \$100 at the time of release for pre-orders, and nothing for the same title 12-18 months later on Xbox Live. (I know, I know, the plural of anecdote is not data, but given the trend at brick and mortar retailers as well, I feel safe making the assertion).

Is this a function of the lack of spoilage/storage costs (i.e. IP lasts forever in the US [practically], and has almost no marginal cost to reproduce), such that it wouldn't work with cars, and if so, why are the same model year cars frequently sold at substantial discounts after their initial release.

It seems to have been going on long enough that literally every car buyer should be aware they can get the same car substantially cheaper in six months, yet people continue to consume both large physical durable goods and IP-related goods almost immediately upon their availability.

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    $\begingroup$ What kind of progress are you interested in. There are various (theory) papers on reasons why the Coase conjecture fails, which often ends up implying a dynamic like the lesser-known Pacman conjecture. I am less abreast of the empirical literature. $\endgroup$
    – Ubiquitous
    Dec 22 '14 at 21:47
  • $\begingroup$ I'm looking for the marriage of theory and data ideally. Confirmation that monopolies achieve higher profits and are employing pacman style pricing, and an explanation of why. $\endgroup$ Dec 22 '14 at 22:03

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