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R&D Investment, Planned Obsolescence, and Network Effects

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  • Jong-Hee Hahn
  • Jin-Hyuk Kim

Abstract

We analyze a durable-goods monopolist's R&D incentive in a market with network effects. It is shown that if the network effect is strong, the monopolist underinvests in new-product R&D compared to the commitment level. This contrasts conventional wisdom that durable-goods producers exercise planned obsolescence by introducing new products too frequently. When the monopolist can additionally invest in the intensity of network benefit, it tends to underinvest in network intensity. This further reduces the investment in new-product R&D relative to the commitment level.

Suggested Citation

  • Jong-Hee Hahn & Jin-Hyuk Kim, 2015. "R&D Investment, Planned Obsolescence, and Network Effects," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(4), pages 652-665, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201512)171:4_652:ripoan_2.0.tx_2-h
    DOI: 10.1628/093245613X14316704848540
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    References listed on IDEAS

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    1. Paul A. Grout & In-Uck Park, 2005. "Competitive Planned Obsolescence," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 596-612, Autumn.
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    4. Glenn Ellison & Drew Fudenberg, 2000. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 253-272, Summer.
    5. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
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    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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