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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- Jong‐Hee Hahn, 2006.
"Damaged durable goods,"
RAND Journal of Economics,
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- Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1995. "Intertemporal Self-Selection with Multiple Buyers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(3), pages 513-526, May.
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- Michael Waldman, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 273-283.
- von der Fehr, Nils-Henrik Morch & Kuhn, Kai-Uwe, 1995. "Coase versus Pacman: Who Eats Whom in the Durable-Goods Monopoly?," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 785-812, August. Full references (including those not matched with items on IDEAS)
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