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Durable Goods Monopoly, Learning-by-doing and "Sleeping Patents"

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  • Edward Kutsoati

    ()

  • Jan Zabojnik

    ()

Abstract

We analyze a durable good monopolist's decision to adopt a new and more efficient technology that is readily available at no cost. After an initial period of learning by doing, the new technology can either lower the cost of production, or make the good more attractive to consumers. We show that for certain parameter values, the monopolist finds it optimal to continue using the inferior production technology. An implication for welfare purposes is that a durable good monopolist may hold onto a "sleeping patent" when its use is socially desirable. However, we also show that sometimes the monopolist innovates too much relative to the socially optimal level.

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Bibliographic Info

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0105.

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Date of creation: 2001
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Handle: RePEc:tuf:tuftec:0105

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  1. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  2. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  3. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
  4. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  5. Sobel, Joel, 1991. "Durable Goods Monopoly with Entry of New Consumers," Econometrica, Econometric Society, vol. 59(5), pages 1455-85, September.
  6. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
  7. Bau, Kaushik, 1988. "Why Monopolists Prefer to Make Their Goods Less Durable," Economica, London School of Economics and Political Science, vol. 55(220), pages 541-46, November.
  8. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
  9. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 167-82, June.
  10. Bulow, Jeremy, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 729-49, November.
  11. Waldman, Michael, 1996. "Durable Goods Pricing When Quality Matters," The Journal of Business, University of Chicago Press, vol. 69(4), pages 489-510, October.
  12. Chi, Woody Chih-Yi, 1999. "Quality choice and the Coase problem," Economics Letters, Elsevier, vol. 64(1), pages 107-115, July.
  13. Daniel A. Levinthal & Devavrat Purohit, 1989. "Durable Goods and Product Obsolescence," Marketing Science, INFORMS, vol. 8(1), pages 35-56.
  14. Lee, In Ho & Lee, Jonghwa, 1998. "A Theory of Economic Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 383-401, September.
  15. Michael Waldman, 1996. "Planned Obsolescence and the R&D Decision," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 583-595, Autumn.
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Cited by:
  1. 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, vol. 23(1-2), pages 83-108, February.
  2. Palomeras, Neus, 2003. "Sleeping patents: any reason to wake up?," IESE Research Papers D/506, IESE Business School.
  3. Ari Gerstle & Michael Waldman, . "Mergers In Durable-Goods Industries: A Re-Examination Of Market Power And Welfare Effects," American Law & Economics Association Annual Meetings 1038, American Law & Economics Association.
  4. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.

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