IDEAS home Printed from
   My bibliography  Save this article

Durable Goods and Product Obsolescence


  • Daniel A. Levinthal

    (Carnegie-Mellon University)

  • Devavrat Purohit

    (Carnegie-Mellon University)


The issue of product obsolescence is addressed by examining the optimal sales strategy of a monopolist firm that may introduce an improved version of its current product. Consumers' expectations of a forthcoming product lowers the price that they are willing to pay for the current product because of its loss in value due to obsolescence. The new product is characterized by consumers' increased willingness to pay and by its competitive interaction with the old product. These characteristics affect the tradeoff that the firm makes between the cost of waiting for new product sales versus the cost of cannibalizing these sales. We analyze the effect of these characteristics of the new product on the firm's optimal sales strategy. We consider the various policy measures available to the firm, including limiting initial sales in order to lower cannibalization of the new product, buying back the earlier version of the product in order to generate greater demand for the new product, and announcements of future product introductions. We find that, for modest levels of product improvement, the firm's optimal policy is to phase out sales of the old product, while for large improvements a buy-back policy is more profitable. Lastly we find that the firm is better off if it informs consumers whether a new product is forthcoming.

Suggested Citation

  • Daniel A. Levinthal & Devavrat Purohit, 1989. "Durable Goods and Product Obsolescence," Marketing Science, INFORMS, vol. 8(1), pages 35-56.
  • Handle: RePEc:inm:ormksc:v:8:y:1989:i:1:p:35-56
    DOI: 10.1287/mksc.8.1.35

    Download full text from publisher

    File URL:
    Download Restriction: no


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:8:y:1989:i:1:p:35-56. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matthew Walls). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.