Product Durability in Markets with Consumer Lock-in

Tobias Langenberg

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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.

Keywords: Consumer Lock-in; Product Durability; Duopoly (search for similar items in EconPapers)
JEL-codes: D21 L13 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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