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Damaged Durable Goods

  • Jong-Hee Hahn

    (Keele University)

A durable-goods monopolist may use quality degradation as a commitment not to lower price in the future. The introduction of damaged goods expedites low-valuation consumers’ future demands, and helps the firm to mitigate the Coasian time-consistency problem. In such a case, damaged goods are more likely to be observed relative to the static setting where only the price-discrimination aspect of quality degradation is in effect. However, it is more likely to reduce welfare by inducing low- valuation buyers to buy the low-quality good early rather than to wait and buy the high-quality good later. So, quality degradation of durable goods is more likely to occur but less promising to the society, relative to the case of non-durable goods where damaged goods are rarely observed but more likely to be Pareto-improving.

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File URL: http://128.118.178.162/eps/io/papers/0211/0211010.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0211010.

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Length: 26 pages
Date of creation: 05 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpio:0211010
Note: Type of Document - pdf; prepared on pc; pages: 26
Contact details of provider: Web page: http://128.118.178.162

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  1. Jong-Hee Hahn, 2000. "Functional Quality Degradation of Software with Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2000/12, Department of Economics, Keele University, revised Jan 2001.
  2. Choi, J.P., 1991. "Network Externality, Compatibility Choice, and Planned Obsolescence," Discussion Papers 1991_67, Columbia University, Department of Economics.
  3. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  4. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  5. repec:att:wimass:9508 is not listed on IDEAS
  6. Bulow, Jeremy, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 729-49, November.
  7. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December.
  8. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1995. "Intertemporal Self-Selection with Multiple Buyers," Economic Theory, Springer, vol. 5(3), pages 513-26, May.
  9. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  10. Lee, In Ho & Lee, Jonghwa, 1998. "A Theory of Economic Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 383-401, September.
  11. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  12. 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.
  13. Takeyama, Lisa N, 2002. "Strategic Vertical Differentiation and Durable Goods Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 43-56, March.
  14. Hahn, Jong-Hee, 2004. "The welfare effect of quality degradation in the presence of network externalities," Information Economics and Policy, Elsevier, vol. 16(4), pages 535-552, December.
  15. Butz, David A, 1990. "Durable-Good Monopoly and Best-Price Provisions," American Economic Review, American Economic Association, vol. 80(5), pages 1062-76, December.
  16. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
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