Technological and Physical Obsolescence and the Timing of Adoption
I study the relative role of technological and physical obsolescence in the determination of the timing of adoption and the monopolist s incentives to innovate. I show that depreciation of durable goods (physical obsolescence) makes decisions about the timing of adoption non-trivial. If the monopolist cannot perfectly restrict the timing of purchases (using purchase deadlines, trade-in allowances, etc.) then its optimal pricing policy will inefficiently delay adoption, which in turn will reduce the incentives to innovate.
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