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Damaged durable goods

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  • Jong‐Hee Hahn

Abstract

A durable-goods monopolist may use quality degradation as a commitment not to lower price in the future. The introduction of damaged goods expedites low-valuation consumers' future demands, and helps the firm to mitigate the Coasian time-consistency problem. In such a case, damaged goods are more likely to be observed relative to the static setting where only the price-discrimination aspect of quality degradation is in effect. However, it is more likely to reduce welfare by inducing low-valuation buyers to buy the low-quality good early rather than to wait and buy the high-quality good later. So, quality degradation of durable goods is more likely to occur but less promising to the society, relative to the case of non-durable goods where damaged goods are rarely observed but more likely to be Pareto-improving.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 37 (2006)
Issue (Month): 1 (03)
Pages: 121-133

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Handle: RePEc:bla:randje:v:37:y:2006:i:1:p:121-133

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  2. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  3. Jong-Hee Hahn, 2000. "Functional Quality Degradation of Software with Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2000/12, Department of Economics, Keele University, revised Jan 2001.
  4. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
  5. Choi, J.P., 1991. "Network Externality, Compatibility Choice, and Planned Obsolescence," Discussion Papers 1991_67, Columbia University, Department of Economics.
  6. von der Fehr, Nils-Henrik Morch & Kuhn, Kai-Uwe, 1995. "Coase versus Pacman: Who Eats Whom in the Durable-Goods Monopoly?," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 785-812, August.
  7. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
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  10. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1995. "Intertemporal Self-Selection with Multiple Buyers," Economic Theory, Springer, vol. 5(3), pages 513-26, May.
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  13. Jong-Hee Hahn, 2001. "The Welfare Effect of Quality Degradation in the Presence of Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2001/08, Department of Economics, Keele University, revised Feb 2003.
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  15. Lee, In Ho & Lee, Jonghwa, 1998. "A Theory of Economic Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 383-401, September.
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Cited by:
  1. Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," Working Papers 08-03, NET Institute.
  2. McAfee, R. Preston, 2007. "Pricing Damaged Goods," Economics Discussion Papers 2007-2, Kiel Institute for the World Economy.
  3. Ding, Yucheng, 2014. "Why Branded Firm may Benefit from Counterfeit Competition," MPRA Paper 52933, University Library of Munich, Germany.
  4. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.
  5. Jong-Hee Hahn, 2004. "Durable Goods Monopoly with Endogenous Quality," Econometric Society 2004 Far Eastern Meetings 665, Econometric Society.
  6. Gergely Csorba & Jong-Hee Hahn, 2006. "FUNCTIONAL DEGRADATION AND ASYMMETRIC NETWORK EFFECTS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 253-268, 06.

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