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Damaged Durable Goods

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  • Jong-Hee Hahn

    (Keele University)

Abstract

I analyze a durable-goods monopolistÕs incentives to introduce a damaged good (a stripped down version of the original good) in an infinite-horizon framework. The damaged good helps the monopolist to mitigate the Coasian time-inconsistency problem. However, it may lead to a welfare reduction: low-valuation buyers are induced to purchase the low-quality damaged good early rather than buy the high-quality original good later, and when the players are patient the surplus loss from quality reduction outweighs the gain from earlier consumptions. This welfare result contrasts with the previous literature based on a static framework.

Suggested Citation

  • Jong-Hee Hahn, 2006. "Damaged Durable Goods," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 121-133, Spring.
    • Handle: RePEc:rje:randje:v:37:y:2006:1:p:121-133
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    Cited by:

    1. Jay Pil Choi & Byung‐Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471, September.
    2. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.
    3. McAfee, R. Preston, 2007. "Pricing Damaged Goods," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 1, pages 1-19.
    4. Gergely Csorba & Jong‐Hee Hahn, 2006. "Functional Degradation And Asymmetric Network Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 253-268, June.

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