Planned Obsolescence As A Signal of Quality
AbstractThis 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]
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal International Economic Journal.
Volume (Year): 15 (2001)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RIEJ20
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
- Michael Waldman, 1996. "Planned Obsolescence and the R&D Decision," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 583-595, Autumn.
- 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.
- 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.
- 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.
- 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.
- Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February.
- Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
- repec:att:wimass:9508 is not listed on IDEAS
- Swan, Peter L, 1970. "Durability of Consumption Goods," American Economic Review, American Economic Association, vol. 60(5), pages 884-94, December.
- Raymond J. Deneckere & R. Preston McAfee, 1996.
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 5(2), pages 149-174, 06.
- Roland Strausz, . "Planned Obsolescence and the Provision of Unobservable Quality," Papers 028, Departmental Working Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.