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Durable Goods Pricing When Quality Matters

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  • Waldman, Michael

Abstract

This article considers a durable goods monopolist's choice of price and durability in a setting where durability choice controls the speed with which quality deteriorates. This article derives three main results: the price at which old units trade on the secondhand market limits what the firm can charge for new units; because of this linkage between the prices for new and old units, the firm chooses a durability level that is below the socially optimal level; and the incentive to reduce durability can be sufficiently severe that the monopolist eliminates the market for secondhand goods. Copyright 1996 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 69 (1996)
Issue (Month): 4 (October)
Pages: 489-510

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Handle: RePEc:ucp:jnlbus:v:69:y:1996:i:4:p:489-510

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Pasquale Schiraldi, 2006. "Second-Hand Markets and Collusion by Manufacturers of Semidurable Goods," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2006-028, Boston University - Department of Economics.
  2. Arghya Ghosh & Hodaka Morita, 2008. "An economic analysis of platform sharing," NBER Chapters, in: Organizational Innovation and Firm Performance, pages 164-186 National Bureau of Economic Research, Inc.
  3. Hodaka Morita & Xuan Nguyen, 2012. "FDI and Technology Spillovers under Vertical Product Di erentiation," Discussion Papers, School of Economics, The University of New South Wales 2012-19, School of Economics, The University of New South Wales.
  4. Edward Kutsoati & Jan Zabojnik, 2001. "Durable Goods Monopoly, Learning-by-doing and "Sleeping Patents"," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0105, Department of Economics, Tufts University.
  5. Dennis W. Carlton & Michael Waldman, 2001. "Competition, Monopoly, and Aftermarkets," NBER Working Papers 8086, National Bureau of Economic Research, Inc.
  6. Eric BROUILLAT (GREThA, CNRS, UMR 5113), 2011. "Durability of consumption goods and market competition: an agent-based modelling," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2011-31, Groupe de Recherche en Economie Théorique et Appliquée.
  7. Utaka, Atsuo, 2008. "Pricing strategy, quality signaling, and entry deterrence," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(4), pages 878-888, July.
  8. Simon Board, 2005. "Durable-Goods Monopoly with Varying Cohorts," 2005 Meeting Papers, Society for Economic Dynamics 847, Society for Economic Dynamics.
  9. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(1), pages 131-154, Winter.
  10. Kumar, Praveen, 2006. "Intertemporal price-quality discrimination and the Coase conjecture," Journal of Mathematical Economics, Elsevier, vol. 42(7-8), pages 896-940, November.
  11. Kutsoati, Edward & Zabojnik, Jan, 2005. "The effects of learning-by-doing on product innovation by a durable good monopolist," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(1-2), pages 83-108, February.
  12. Carlaw, Kenneth I., 2005. "Optimal obsolescence," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 69(1), pages 21-45.
  13. Waldman, Michael, 2013. "What Limits Indirect Appropriability?," MPRA Paper 44690, University Library of Munich, Germany.
  14. Kumar, Praveen, 2002. "Price and quality discrimination in durable goods monopoly with resale trading," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(9), pages 1313-1339, November.
  15. Kinokuni, Hiroshi & Ohkawa, Takao & Okamura, Makoto, 2010. ""Planned antiobsolescence" occurs when consumers engage in maintenance," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(5), pages 441-450, September.
  16. Gregory E. Goering, . "Non-Profit Firms and the Provision of Durable Goods," Departmental Working Papers, Department of Economics, Louisiana State University 2006-16, Department of Economics, Louisiana State University.
  17. Fethke, Gary & Jagannathan, Raj, 2002. "Monopoly with endogenous durability," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(6), pages 1009-1027, June.
  18. Ari Gerstle & Michael Waldman, . "Mergers In Durable-Goods Industries: A Re-Examination Of Market Power And Welfare Effects," American Law & Economics Association Annual Meetings, American Law & Economics Association 1038, American Law & Economics Association.
  19. Qiu_Hong Wang & Kai-Lung Hui, 2005. "Technology Timing and Pricing In the Presence of an Installed Base," Industrial Organization, EconWPA 0512013, EconWPA.
  20. Miao, Chun-Hui, 2010. "Consumer myopia, standardization and aftermarket monopolization," European Economic Review, Elsevier, Elsevier, vol. 54(7), pages 931-946, October.

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