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Damaged durable goods

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  • Jong‐Hee Hahn

Abstract

A durable-goods monopolist may use quality degradation as a commitment not to lower price in the future. The introduction of damaged goods expedites low-valuation consumers' future demands, and helps the firm to mitigate the Coasian time-consistency problem. In such a case, damaged goods are more likely to be observed relative to the static setting where only the price-discrimination aspect of quality degradation is in effect. However, it is more likely to reduce welfare by inducing low-valuation buyers to buy the low-quality good early rather than to wait and buy the high-quality good later. So, quality degradation of durable goods is more likely to occur but less promising to the society, relative to the case of non-durable goods where damaged goods are rarely observed but more likely to be Pareto-improving.
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Suggested Citation

  • Jong‐Hee Hahn, 2006. "Damaged durable goods," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 121-133, March.
  • Handle: RePEc:bla:randje:v:37:y:2006:i:1:p:121-133
    DOI: j.1756-2171.2006.tb00007.x
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    References listed on IDEAS

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    1. Hahn, Jong-Hee, 2004. "The welfare effect of quality degradation in the presence of network externalities," Information Economics and Policy, Elsevier, vol. 16(4), pages 535-552, December.
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    13. Jong-Hee Hahn, 2000. "Functional Quality Degradation of Software with Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2000/12, Department of Economics, Keele University, revised Jan 2001.
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    Cited by:

    1. Ali K. Parlaktürk, 2012. "The Value of Product Variety When Selling to Strategic Consumers," Manufacturing & Service Operations Management, INFORMS, vol. 14(3), pages 371-385, July.
    2. McAfee, R. Preston, 2007. "Pricing Damaged Goods," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-19.
    3. Jay Pil Choi & Byung-Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471.
    4. Ding, Yucheng, 2014. "Why Branded Firm may Benefit from Counterfeit Competition," MPRA Paper 52933, University Library of Munich, Germany.
    5. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.
    6. Jong-Hee Hahn, 2004. "Durable Goods Monopoly with Endogenous Quality," Econometric Society 2004 Far Eastern Meetings 665, Econometric Society.
    7. Gergely Csorba & Jong-Hee Hahn, 2006. "FUNCTIONAL DEGRADATION AND ASYMMETRIC NETWORK EFFECTS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 253-268, June.

    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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