Upgrades, Trade-Ins and BuyBacks
This paper studies the monopoly pricing of overlapping generations of a durable good. We focus on two sorts of goods: those with an active second-hand market and anonymous consumers, such as textbooks, and gods such as software, where there is no second-hand market and consumers are "semi-anonymous," meaning that they can prove that they purchased the old version to qualify for a discount on the new one. In the former case, we find that the sales of the new goods are independent of the existing stock of the old one if the monopolist chooses either to produce or repurchase the old good after the new one becomes available, but that this separation does not hold when the monopolist chooses to be inactive on teh old-good market. Moreover, we identify parameter regions where each of these three possibilities will occur. In the "semi-anonymous" case, we find that if the new good is a sufficiently large improvement the semi-anonymity constraint binds, in that the monopolist would prefer to charge a higher price for upgrades than for sales to new consumers. If the new good is a smaller improvement, then upgrade discounts are optimal, and the outcome is the same as if the monopolist knew exactly which consumers had purchased in the first period. If in addition both goods are essentially costless, then all consumers who purchase the old good upgrade when the new one becomes available. If the old good is costless but the new good is not, and the discount factor is low, there can be "leapfrogging" in that some low-valuation consumers will purchase the new good even though some high-valuation ones purchased the old good at the start and do not upgrade.
|Date of creation:||1997|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.harvard.edu/journals/hier
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010.
"Foundations of Dynamic Monopoly and the Coase Conjecture,"
Levine's Working Paper Archive
232, David K. Levine.
- Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
- Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
- Pesendorfer, Wolfgang, 1995.
"Design Innovation and Fashion Cycles,"
American Economic Review,
American Economic Association, vol. 85(4), pages 771-92, September.
- Raymond J. Deneckere & R. Preston McAfee, 1996.
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 5(2), pages 149-174, 06.
- Thum, Marcel, 1994. "Network externalities, technological progress, and the competition of market contracts," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 269-289, June.
- John A. Norton & Frank M. Bass, 1987. "A Diffusion Theory Model of Adoption and Substitution for Successive Generations of High-Technology Products," Management Science, INFORMS, vol. 33(9), pages 1069-1086, September.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Lee, I.H. & Lee, J., 1994. "Durable goods monopoly under technological innovation," Discussion Paper Series In Economics And Econometrics 9413, Economics Division, School of Social Sciences, University of Southampton.
- Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 167-82, June.
- Laffont, Jean-Jacques & Tirole, Jean, 1988.
"The Dynamics of Incentive Contracts,"
Econometric Society, vol. 56(5), pages 1153-75, September.
- Devavrat Purohit, 1994. "What Should You Do When Your Competitors Send in the Clones?," Marketing Science, INFORMS, vol. 13(4), pages 392-411.
- Daniel A. Levinthal & Devavrat Purohit, 1989. "Durable Goods and Product Obsolescence," Marketing Science, INFORMS, vol. 8(1), pages 35-56.
- Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February.
- Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
When requesting a correction, please mention this item's handle: RePEc:fth:harver:1803. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.