Durable Goods Monopoly with Endogenous Quality
This paper examines the dynamic pricing problem of a durable-good monopolist when product quality is endogenous. It is shown that the relationship between the firm's quality choice and the time-inconsistency problem crucially depends on how the unit production cost varies with quality. The monopolist may use quality as a strategic commitment device to eliminate the time-inconsistency problem. Also, it may have incentives to choose a quality higher or lower than the optimal commitment level. This contrasts with the planned obsolescence literature where durable goods monopolists reduces durability (often regarded as a measure of quality) to mitigate the time-inconsistency problem
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Royal Economic Society Annual Conference 2003
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