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Planned Obsolescence As A Signal of Quality

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  • Choi Jay Pil

Abstract

This paper provides a new rationale for planned obsolescence based on imperfect information about the quality of durable goods. The source of the inefficient choice of durability lies in the fact that the frequency of repeat purchases and the future expected profit that can monitor the quality of the good is inversely related to the durability of the good. Since the repeat purchases are valued more for the high quality producer, the returns to reduced durability is also greater for the high quality producer. This asymmetry in the returns to reduced durabhilit y implies that planned obsolescence can be used as a signal of quality. With leasing, however, the durability choice incentive often runs in the other direction, and the monopolist tends to choose excessively long lives for his product. This is in sharp contrast to the durability literature where leasing restores the incentive for the efficient choice of durability. [L1, D8]

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 15 (2001)
Issue (Month): 4 ()
Pages: 59-79

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Handle: RePEc:taf:intecj:v:15:y:2001:i:4:p:59-79

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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. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February.
  3. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  4. Michael Waldman, 1996. "Planned Obsolescence and the R&D Decision," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 583-595, Autumn.
  5. Arthur Fishman & Rafael Rob, 2000. "Product Innovation by a Durable-Good Monpoly," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 237-252, Summer.
  6. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  7. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  8. Swan, Peter L, 1970. "Durability of Consumption Goods," American Economic Review, American Economic Association, vol. 60(5), pages 884-94, December.
  9. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  10. Swan, Peter L, 1970. "Market Structure and Technological Progress: The Influence of Monopoly on Product Innovation," The Quarterly Journal of Economics, MIT Press, vol. 84(4), pages 627-38, November.
  11. Levhari, David & Srinivasan, T N, 1969. "Durability of Consumption Goods: Competition Versus Monopoly," American Economic Review, American Economic Association, vol. 59(1), pages 102-07, March.
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Cited by:
  1. Roland Strausz, . "Planned Obsolescence and the Provision of Unobservable Quality," Papers 028, Departmental Working Papers.

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