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Durable Goods Pricing When Quality Matters

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  • Waldman, Michael

Abstract

This article considers a durable goods monopolist's choice of price and durability in a setting where durability choice controls the speed with which quality deteriorates. This article derives three main results: the price at which old units trade on the secondhand market limits what the firm can charge for new units; because of this linkage between the prices for new and old units, the firm chooses a durability level that is below the socially optimal level; and the incentive to reduce durability can be sufficiently severe that the monopolist eliminates the market for secondhand goods. Copyright 1996 by University of Chicago Press.

Suggested Citation

  • Waldman, Michael, 1996. "Durable Goods Pricing When Quality Matters," The Journal of Business, University of Chicago Press, vol. 69(4), pages 489-510, October.
  • Handle: RePEc:ucp:jnlbus:v:69:y:1996:i:4:p:489-510
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