Planned Obsolescence and Social Welfare

Atsuo Utaka
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Atsuo Utaka: Kyoto University

The Journal of Business, 2006, vol. 79, issue 1, 137-148

Abstract: Durable-goods marketing has an obsolescence effect on older models. I consider two cases: commitment (where the decision on how much to invest in marketing is made in the first period) and noncommitment (where the decision is made in the second period). I focus on the fact that the introduction of a higher quality model lowers the utility of consumers using an older model. I show that, in both cases, the equilibrium level of marketing rises above the socially optimal level. The point is that a larger obsolescence effect promotes replacement demand, driving the monopolist to spend more than is socially optimal.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:1:p:137-148

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