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Product Innovation by a Durable-Good Monpoly

Author

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  • Arthur Fishman
  • Rafael Rob

Abstract

We consider a durable-good monopolist that periodically introduces new models, each new model representing an improvement upon its predecessor. We show that if the monopolist is able neither to exercise planned obsolescence (i.e., artificially shorten the lift of its products) nor to give discounts to repeat customers, the rate of product introductions is too slow -- in comparison with the social optimum. On the other hand, if the monopolist is able to artificially shorten the durability of its products or to offer price discounts to repeat customers, it can raise its profit and, at the same time, implement the social optimum.

Suggested Citation

  • Arthur Fishman & Rafael Rob, 2000. "Product Innovation by a Durable-Good Monpoly," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 237-252, Summer.
  • Handle: RePEc:rje:randje:v:31:y:2000:i:summer:p:237-252
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    References listed on IDEAS

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    Cited by:

    1. Blonigen, Bruce A. & Knittel, Christopher R. & Soderbery, Anson, 2017. "Keeping it fresh: Strategic product redesigns and welfare," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 170-214.
    2. Eric Brouillat, 2011. "Durability of consumption goods and market competition: an agent-based modelling," Post-Print hal-00780254, HAL.
    3. Jong-Hee Hahn & Jin-Hyuk Kim, 2012. "Monopoly R&D and Compatibility Decisions in Network Industries," Working papers 2012rwp-43, Yonsei University, Yonsei Economics Research Institute.
    4. Choi Jay Pil, 2001. "Planned Obsolescence As A Signal of Quality," International Economic Journal, Taylor & Francis Journals, vol. 15(4), pages 59-79.
    5. Erica Plambeck & Qiong Wang, 2009. "Effects of E-Waste Regulation on New Product Introduction," Management Science, INFORMS, vol. 55(3), pages 333-347, March.
    6. Ramon Caminal, 2016. "Dynamic Product Diversity," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 1-26, March.
    7. William Caylor, 2016. "Credible Signals Of The Release Of New Versions," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 862-878, April.
    8. Eric Brouillat, 2015. "Live fast, die young? Investigating product life spans and obsolescence in an agent-based model," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 447-473, April.
    9. Karthik Ramachandran & V. Krishnan, 2008. "Design Architecture and Introduction Timing for Rapidly Improving Industrial Products," Manufacturing & Service Operations Management, INFORMS, vol. 10(1), pages 149-171, December.
    10. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo Group Munich.
    11. Sebastian Benz & Mario Larch & Markus Zimmer, 2014. "The structure of the German economy," Applied Economics, Taylor & Francis Journals, vol. 46(27), pages 3274-3283, September.
    12. Jiri Strelicky & Kresimir Zigic, 2013. "Software Upgrades under Monopoly," CERGE-EI Working Papers wp478, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    13. Karbowski Adam, 2016. "The Elasticity-Based Approach to Enterprise Innovation," International Journal of Management and Economics, De Gruyter Open, vol. 49(1), pages 58-78, March.
    14. Ramon Caminal, 2014. "Dynamic Product Diversity," Working Papers 594, Barcelona Graduate School of Economics.
    15. Athanasopoulos, Thanos, "undated". "Efficient Upgrading in Network Goods : Is Commitment Always Good?," The Warwick Economics Research Paper Series (TWERPS) 1006, University of Warwick, Department of Economics.
    16. Calvano, Emilio, 2006. "Destructive Creation," SSE/EFI Working Paper Series in Economics and Finance 653, Stockholm School of Economics, revised 30 Dec 2007.
    17. Boldrin, Michele & Levine, David K., 2005. "Innováció - a verseny szemszögéből
      [Innovation: the competitive view]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 537-555.
    18. Kumar, Praveen, 2002. "Price and quality discrimination in durable goods monopoly with resale trading," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1313-1339, November.
    19. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    20. Bayus Barry & Chintagunta Pradeep, 2003. "Competitive Entry and Pricing Responses to Product Innovation," Review of Marketing Science, De Gruyter, vol. 1(1), pages 1-26, August.
    21. Souza, Eduardo Correia de & Batista, Jorge Chami, 2014. "Replacement Cycles, Income Distribution, and Dynamic Price Discrimination," Insper Working Papers wpe_331, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    22. Ennio Stacchetti & Dmitriy Stolyarov, 2015. "Obsolescence of Durable Goods and Optimal Purchase Timing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 752-773, October.
    23. Xiong, Yu & Zhao, Pei & Xiong, Zhongkai & Li, Gendao, 2016. "The impact of product upgrading on the decision of entrance to a secondary market," European Journal of Operational Research, Elsevier, vol. 252(2), pages 443-454.

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