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Planned Obsolescence and the R&D Decision

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  • Michael Waldman

Abstract

By investing in R&D, a durable-goods monopolist can improve the quality of what it will sell in the future, and in this way reduce the future value of current and past units of output. This article shows that if the firm sells its output, then it faces a time inconsistency problem; i.e., the R&D choice that maximizes current profitability does not maximize overall profitability. The result is that if output is sold rather than rented, then in its R&D decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability.

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Bibliographic Info

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

Volume (Year): 27 (1996)
Issue (Month): 3 (Autumn)
Pages: 583-595

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Handle: RePEc:rje:randje:v:27:y:1996:i:autumn:p:583-595

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Cited by:
  1. 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.
  2. Pasquale Schiraldi, 2009. "Second-Hand Markets and Collusion byManufacturers of Semidurable Goods," STICERD - Economics of Industry Papers 48, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Evrim Dener, 2007. "Quality Uncertainty and Time Inconsistency in a Durable Good Market," Departmental Working Papers 0707, Southern Methodist University, Department of Economics.
  4. Ambec, Stefan & Langinier, Corinne & Lemarie, Stephane, 2005. "Incentive to reduce crop trait durability," 2005 Annual meeting, July 24-27, Providence, RI 19251, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use Of Tying To Preserve And Create Market Power In Evolving Industries," University of Chicago - George G. Stigler Center for Study of Economy and State 145, Chicago - Center for Study of Economy and State.
  6. 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.
  7. Evrim Dener, 2011. "Quality uncertainty and time inconsistency in a durable good market," Journal of Economics, Springer, vol. 104(1), pages 1-24, September.
  8. Awrey, Dan, 2013. "Toward a supply-side theory of financial innovation," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 401-419.
  9. Atsuo Utaka, 2001. "The Learning Curve and Durable-Goods Production," Economics Bulletin, AccessEcon, vol. 12(5), pages 1-8.
  10. Athanasopoulos, Thanos, 2013. "Efficient Upgrading in Network Goods : Is Commitment Always Good?," The Warwick Economics Research Paper Series (TWERPS) 1006, University of Warwick, Department of Economics.
  11. Carlaw, Kenneth I., 2005. "Optimal obsolescence," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 69(1), pages 21-45.
  12. 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.
  13. 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.
  14. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
  15. Choi Jay Pil, 2001. "Planned Obsolescence As A Signal of Quality," International Economic Journal, Taylor & Francis Journals, vol. 15(4), pages 59-79.
  16. Giovanni Goldoni, 2007. "La gestione dei rifiuti da apparecchiature elettriche ed elettroniche dopo la direttiva 2002/96/CE," Working Papers 43, University of Verona, Department of Economics.

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