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Planned Obsolescence and the Provision of Unobservable Quality

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  • Roland Strausz

    (Free University of Berlin, Department of Economics)

Abstract

This paper develops the idea that obsolescence acts as an incentive device to provide quality for experience goods. The argument is that obsolescence affects the frequency at which consumers repurchase products and may punish producers for a lack of quality. A higher rate of obsolescence enables a firm to convince its consumers that it provides high quality. We identify a trade--off between quality and durability, implying that the two are substitutes. This leads to excessive obsolescence. The inefficiency is due to unobservability and not monopolistic distortions. The theory follows naturally from the theory of repeated games.

Suggested Citation

  • Roland Strausz, "undated". "Planned Obsolescence and the Provision of Unobservable Quality," Papers 028, Departmental Working Papers.
    • Handle: RePEc:bef:lsbest:028
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    File URL: http://userpage.fu-berlin.de/%7Elsbester/papers/obsolescence.pdf
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    References listed on IDEAS

    as
    1. Michael Waldman, 1996. "Planned Obsolescence and the R&D Decision," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 583-595, Autumn.
    2. Choi Jay Pil, 2001. "Planned Obsolescence As A Signal of Quality," International Economic Journal, Taylor & Francis Journals, vol. 15(4), pages 59-79.
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    7. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    8. Peter L. Swan, 1970. "Market Structure and Technological Progress: The Influence of Monopoly on Product Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(4), pages 627-638.
    9. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 729-749.
    10. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    11. Schmalensee, Richard, 1979. "Market Structure, Durability, and Quality: A Selective Survey," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 177-196, April.
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    Cited by:

    1. Elisabetta Iossa & Patrick Rey, 2014. "Building Reputation For Contract Renewal: Implications For Performance Dynamics And Contract Duration," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 549-574, June.

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    More about this item

    Keywords

    Obsolescence; unobservable quality; reputation; repeated games;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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