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Durable‐Goods Monopoly with Endogenous Innovation

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  • Jae Nahm

Abstract

While selling an existing product, a durable‐goods monopolist may develop a new, improved product. The firm must consider the interaction between its intertemporal pricing and research and development (R&D) decisions. The interactions show a sharp dichotomy depending on pricing regimes. When it is optimal for the firm to continue to sell the old model along with the new model, the interactions disappear. However, when it is optimal for the firm to discontinue the sale of the old model after introducing the new model, the firm will face a time‐inconsistency problem in its R&D decision.

Suggested Citation

  • Jae Nahm, 2004. "Durable‐Goods Monopoly with Endogenous Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 303-319, June.
    • Handle: RePEc:bla:jemstr:v:13:y:2004:i:2:p:303-319
    DOI: 10.1111/j.1530-9134.2004.00012.x
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    References listed on IDEAS

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    4. Anton, James J. & Biglaiser, Gary, 2013. "Quality, upgrades and equilibrium in a dynamic monopoly market," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1179-1212.
    5. Evrim Dener, 2007. "Quality Uncertainty and Time Inconsistency in a Durable Good Market," Departmental Working Papers 0707, Southern Methodist University, Department of Economics.
    6. Jong-Hee Hahn & Jin-Hyuk Kim, 2012. "Monopoly R&D and Compatibility Decisions in Network Industries," Working papers 2012rwp-43, Yonsei University, Yonsei Economics Research Institute.
    7. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo.
    8. Miao, Chun-Hui, 2011. "Planned obsolescence and monopoly undersupply," Information Economics and Policy, Elsevier, vol. 23(1), pages 51-58, March.
    9. Esma Koca & Tommaso Valletti & Wolfram Wiesemann, 2021. "Designing Digital Rollovers: Managing Perceived Obsolescence through Release Times," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3698-3712, October.
    10. Joseph Guiltinan, 2010. "Consumer durables replacement decision-making: An overview and research agenda," Marketing Letters, Springer, vol. 21(2), pages 163-174, June.
    11. Atsuo Utaka, 2015. "High Price Strategy and Quality Signalling," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 408-420, September.
    12. Calvano, Emilio, 2006. "Destructive Creation," SSE/EFI Working Paper Series in Economics and Finance 653, Stockholm School of Economics, revised 30 Dec 2007.
    13. Liu, Hsin-Hsien, 2013. "How promotional frames affect upgrade intentions," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 237-248.
    14. Utaka, Atsuo, 2008. "Pricing strategy, quality signaling, and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 878-888, July.
    15. Chun‐Hui Miao, 2010. "Tying, Compatibility And Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 579-606, September.
    16. Jiri Strelicky & Kresimir Zigic, 2013. "Software Upgrades under Monopoly," CERGE-EI Working Papers wp478, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    17. Evrim Dener, 2011. "Quality uncertainty and time inconsistency in a durable good market," Journal of Economics, Springer, vol. 104(1), pages 1-24, September.
    18. Roland Strausz, "undated". "Planned Obsolescence and the Provision of Unobservable Quality," Papers 028, Departmental Working Papers.
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