superior to no trade even at minimal quality (i.e.,
q
≥
c(q
)
). Then there is an equilibrium in
which the seller sets the same price every period, which equals the quality of the good, and there is
trade in every period. The quality of the good solves the program(6.5.6)and is never greater than
any welfare-maximizing quality. It is strictly less for all T if c(·) is strictly convex and everywhere
differentiable.
Continuing to assume c(·) differentiable and strictly convex, the following is readily
shown:
Corollary6.4.Maintain the assumptions ofProposition 6.25. Assume, in addition, that c
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