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Product Durability in Markets with Consumer Lock-in

Author

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  • Langenberg, Tobias

Abstract

This paper examines a two-period duopoly where consumers are locked-in by switching costs that they face in the second period. The paper's main focus is on the question of how the consumer lock-in affects the firms' choice of product durability. We show that firms may face a prisoners' dilemma situation in that they simultaneously choose non-durable products although they would have higher profits by producing durables. From a social welfare perspective, firms may even choose an inefficiently high level of product durability.

Suggested Citation

  • Langenberg, Tobias, 2009. "Product Durability in Markets with Consumer Lock-in," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 279, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:279
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    File URL: https://epub.ub.uni-muenchen.de/13275/1/279.pdf
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    References listed on IDEAS

    as
    1. Padilla, A. Jorge, 1992. "Mixed pricing in oligopoly with consumer switching costs," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 393-411, September.
    2. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
    3. Fishman, Arthur & Gandal, Neil & Shy, Oz, 1993. "Planned Obsolescence as an Engine of Technological Progress," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 361-370, December.
    4. Joseph Farrell & Nancy T. Gallini, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 673-694.
    5. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 167-182, June.
    6. Michael Waldman, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 273-283.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Consumer Lock-in; Product Durability; Duopoly;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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