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Monopoly Distortions in Durability and Multi-Dimensional Quality

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  • Strausz, Roland

Abstract

I show that Swan’s (1970) independence result requires a multiplicative interaction between durability and all other quality attributes. Because there is no compelling argument for a multiplicativity in quality, monopolists tend to distort durability, even with constant marginal costs. Distortions in durability and other quality aspects are aligned exactly when the marginal cost of quality do not increase too much with durability.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 271.

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Date of creation: Sep 2009
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Handle: RePEc:trf:wpaper:271

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Keywords: Durability; quality; monopoly;

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  1. David Levhari & Yoram Peles, 1973. "Market Structure, Quality and Durability," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 235-248, Spring.
  2. Chi, Woody Chih-Yi, 1999. "Quality choice and the Coase problem," Economics Letters, Elsevier, vol. 64(1), pages 107-115, July.
  3. Sieper, E & Swan, P L, 1973. "Monopoly and Competition in the Market for Durable Goods," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 333-51, July.
  4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  5. 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.
  6. Roland Strausz, 2009. "Planned Obsolescence as an Incentive Device for Unobservable Quality," Economic Journal, Royal Economic Society, vol. 119(540), pages 1405-1421, October.
  7. Inderst, Roman, 2003. "Durable Goods with Quality Differentiation," CEPR Discussion Papers 4047, C.E.P.R. Discussion Papers.
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