Planned Obsolescence and the Provision of Unobservable Quality
AbstractThis paper develops the idea that obsolescence acts as an incentive device to provide quality for experience goods. The argument is that obsolescence affects the frequency at which consumers repurchase products and may punish producers for a lack of quality. A higher rate of obsolescence enables a firm to convince its consumers that it provides high quality. We identify a trade--off between quality and durability, implying that the two are substitutes. This leads to excessive obsolescence. The inefficiency is due to unobservability and not monopolistic distortions. The theory follows naturally from the theory of repeated games.
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Find related papers by JEL classification:
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
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