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Monopoly Distortions in Durability and Multi-Dimensional Quality

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  • Strausz, Roland

Abstract

I show that Swan’s (1970) independence result requires a multiplicative interaction between durability and all other quality attributes. Because there is no compelling argument for a multiplicativity in quality, monopolists tend to distort durability, even with constant marginal costs. Distortions in durability and other quality aspects are aligned exactly when the marginal cost of quality do not increase too much with durability.

Suggested Citation

  • Strausz, Roland, 2009. "Monopoly Distortions in Durability and Multi-Dimensional Quality," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 271, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:271
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    References listed on IDEAS

    as
    1. Roland Strausz, 2009. "Planned Obsolescence as an Incentive Device for Unobservable Quality," Economic Journal, Royal Economic Society, vol. 119(540), pages 1405-1421, October.
    2. Inderst, Roman, 2008. "Durable goods with quality differentiation," Economics Letters, Elsevier, vol. 100(2), pages 173-177, August.
    3. David Levhari & Yoram Peles, 1973. "Market Structure, Quality and Durability," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 235-248, Spring.
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    5. 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.
    6. Chi, Woody Chih-Yi, 1999. "Quality choice and the Coase problem," Economics Letters, Elsevier, vol. 64(1), pages 107-115, July.
    7. E. Sieper & P. L. Swan, 1973. "Monopoly and Competition in the Market for Durable Goods," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 333-351.
    8. E. Kleiman & T. Ophir, 1966. "The Durability of Durable Goods," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 33(2), pages 165-178.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Durability; quality; monopoly;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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