Durable Goods Monopoly with Endogenous Quality
AbstractThis paper examines the dynamic pricing problem of a durable-good monopolist when product quality is endogenous. It is shown that the relationship between the firm's quality choice and the time-inconsistency problem crucially depends on how the unit production cost varies with quality. The monopolist may use quality as a strategic commitment device to eliminate the time-inconsistency problem. Also, it may have incentives to choose a quality higher or lower than the optimal commitment level. This contrasts with the planned obsolescence literature where durable goods monopolists reduces durability (often regarded as a measure of quality) to mitigate the time-inconsistency problem
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Date of creation: 11 Aug 2004
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Durable Goods; Quality; Time-inconsistency;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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