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Upgrades, Tradeins, and Buybacks

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  • Drew Fudenberg
  • Jean Tirole

Abstract

We study monopoly pricing of overlapping generations of a durable good. We consider two sorts of goods: those with an active secondhand market and anonymous consumers, such as textbooks, and those with no secondhand market and consumers who can prove that they purchased the old good to qualify for a discount on the new one, such as software. In the first case we show that the monopolist may choose to either produce or repurchase the old good once the new one becomes available. In the latter case we determine when the monopolist chooses to offer upgrade discounts.

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Bibliographic Info

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

Volume (Year): 29 (1998)
Issue (Month): 2 (Summer)
Pages: 235-258

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Handle: RePEc:rje:randje:v:29:y:1998:i:summer:p:235-258

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References

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  1. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
  2. Lee, I.H. & Lee, J., 1994. "Durable goods monopoly under technological innovation," Discussion Paper Series In Economics And Econometrics 9413, Economics Division, School of Social Sciences, University of Southampton.
  3. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 167-82, June.
  4. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  5. repec:fth:coluec:564 is not listed on IDEAS
  6. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  7. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
  8. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  9. Thum, Marcel, 1994. "Network externalities, technological progress, and the competition of market contracts," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 269-289, June.
  10. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
  11. Wolfgang Pesendorfer, 1993. "Design Innovation and Fashion Cycles," Discussion Papers 1049, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Daniel A. Levinthal & Devavrat Purohit, 1989. "Durable Goods and Product Obsolescence," Marketing Science, INFORMS, vol. 8(1), pages 35-56.
  13. Devavrat Purohit, 1994. "What Should You Do When Your Competitors Send in the Clones?," Marketing Science, INFORMS, vol. 13(4), pages 392-411.
  14. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February.
  15. John A. Norton & Frank M. Bass, 1987. "A Diffusion Theory Model of Adoption and Substitution for Successive Generations of High-Technology Products," Management Science, INFORMS, vol. 33(9), pages 1069-1086, September.
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Citations

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Cited by:
  1. Kai-Lung Hui & Qiu-Hong Wang, 2005. "Delayed Product Introduction," Industrial Organization 0503011, EconWPA.
  2. Juan Ruiz, 2003. "Another Perspective on Planned obsolescence: is there really too much Innovation?," Industrial Organization 0302001, EconWPA.
  3. Awrey, Dan, 2013. "Toward a supply-side theory of financial innovation," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 401-419.
  4. Steven J. Davis & Jack MacCrisken & Kevin M. Murphy, 2001. "Economic Perspectives on Software Design: PC Operating Systems and Platforms," NBER Working Papers 8411, National Bureau of Economic Research, Inc.
  5. Qiu_Hong Wang & Kai-Lung Hui, 2005. "Technology Timing and Pricing In the Presence of an Installed Base," Industrial Organization 0512013, EconWPA.
  6. Jin-Hyuk Kim, 2008. "Digital Rights Management and Technological Tying," Working Papers 08-05, NET Institute, revised Sep 2008.
  7. 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.
  8. Souza, Eduardo Correia de & Batista, Jorge Chami, 2014. "Replacement Cycles, Income Distribution, and Dynamic Price Discrimination," Insper Working Papers wpe_331, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  9. Major, Iván, 2008. "Információmegosztás a bankok között. Mikor jó a teljes lista?
    [Sharing of information among banks. When is full-list a good thing?]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 763-781.
  10. Ivan Major, 2013. "Information Sharing Among Banks About Borrowers: What Type Would They Support?," IEHAS Discussion Papers 1316, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  11. Curtis Taylor & Liad Wagman, 2008. "Who Benefits From Online Privacy?," Working Papers 08-26, NET Institute.
  12. Jia, Junxiu & Zhang, Jiang, 2013. "Dynamic ordering and pricing strategies in a two-tier multi-generation durable goods supply chain," International Journal of Production Economics, Elsevier, vol. 144(1), pages 135-142.

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