Damaged Durable Goods

Jong-Hee Hahn
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Jong-Hee Hahn: Keele University

Industrial Organization from EconWPA

Abstract: 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.

Keywords: Damaged Goods; Quality Degradation; Durable-Goods Monopoly; Time-Consistency (search for similar items in EconPapers)
JEL-codes: D42 L12 L15 (search for similar items in EconPapers)
Date: 2002-11-05
Note: Type of Document - pdf; prepared on pc; pages: 26
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0211010

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