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A Theory of Economic Obsolescence

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  • Lee, In Ho
  • Lee, Jonghwa
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    Abstract

    A new generation of durable goods makes an old generation economically, even if not physically, obsolete. Economic obsolescence due to technological innovation requires the durable goods monopolist to implement price discrimination in two dimensions, both between consumers with different valuations and between consumers with different purchase histories. Equilibrium in the game between the durable goods monopolist and consumers depends on the extent of economic obsolescence and the relative sizes of the consumer groups. Underinvestment in innovation may take place. This contrasts with the standard literature on planned obsolescence where the durable goods monopolist overinvests in durability reducing technology. Copyright 1998 by Blackwell Publishing Ltd

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

    Volume (Year): 46 (1998)
    Issue (Month): 3 (September)
    Pages: 383-401

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    Handle: RePEc:bla:jindec:v:46:y:1998:i:3:p:383-401

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    Cited by:
    1. Dennis W. Carlton & Michael Waldman, 2005. "Tying, Upgrades, and Switching Costs in Durable-Goods Markets," NBER Working Papers 11407, National Bureau of Economic Research, Inc.
    2. Edward Kutsoati & Jan Zabojnik, 2001. "Durable Goods Monopoly, Learning-by-doing and "Sleeping Patents"," Discussion Papers Series, Department of Economics, Tufts University 0105, Department of Economics, Tufts University.
    3. Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, vol. 47(6), pages 1011-1036, December.
    4. Franses, Ph.H.B.F. & Hernández-Mireles, C., 2006. "When Should Nintendo Launch its Wii? Insights From a Bivariate Successive Generation Model," ERIM Report Series Research in Management ERS-2006-032-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    5. Utaka, Atsuo, 2008. "Pricing strategy, quality signaling, and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 878-888, July.
    6. Kutsoati, Edward & Zabojnik, Jan, 2005. "The effects of learning-by-doing on product innovation by a durable good monopolist," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 83-108, February.
    7. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo Group Munich.
    8. Heidrun C. Hoppe & In Ho Lee, 2000. "Entry Deterrence in Durable-Goods Monopoly," Econometric Society World Congress 2000 Contributed Papers 0610, Econometric Society.
    9. Jong-Hee Hahn, 2002. "Damaged Durable Goods," Keele Economics Research Papers KERP 2002/21, Centre for Economic Research, Keele University.
    10. Calvano, Emilio, 2006. "Destructive Creation," Working Paper Series in Economics and Finance 653, Stockholm School of Economics, revised 18 Jul 2007.
    11. Eric BROUILLAT (GREThA, CNRS, UMR 5113), 2011. "Durability of consumption goods and market competition: an agent-based modelling," Cahiers du GREThA 2011-31, Groupe de Recherche en Economie Théorique et Appliquée.
    12. Qiu_Hong Wang & Kai-Lung Hui, 2005. "Technology Timing and Pricing In the Presence of an Installed Base," Industrial Organization 0512013, EconWPA.
    13. Evrim Dener, 2011. "Quality uncertainty and time inconsistency in a durable good market," Journal of Economics, Springer, vol. 104(1), pages 1-24, September.

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