Durable Goods Pricing When Quality Matters

Michael Waldman

The Journal of Business, 1996, vol. 69, issue 4, 489-510

Abstract: This article considers a durable goods monopolist's choice of price and durability in a setting where durability choice controls the speed with which quality deteriorates. This article derives three main results: the price at which old units trade on the secondhand market limits what the firm can charge for new units; because of this linkage between the prices for new and old units, the firm chooses a durability level that is below the socially optimal level; and the incentive to reduce durability can be sufficiently severe that the monopolist eliminates the market for secondhand goods. Copyright 1996 by University of Chicago Press.

Date: 1996
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