Durable Goods Monopoly with Endogenous Quality

Jong-Hee Hahn

No 665, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: This paper examines the dynamic pricing problem of a durable-good monopolist when product quality is endogenous. It is shown that the relationship between the firm's quality choice and the time-inconsistency problem crucially depends on how the unit production cost varies with quality. The monopolist may use quality as a strategic commitment device to eliminate the time-inconsistency problem. Also, it may have incentives to choose a quality higher or lower than the optimal commitment level. This contrasts with the planned obsolescence literature where durable goods monopolists reduces durability (often regarded as a measure of quality) to mitigate the time-inconsistency problem

Keywords: Durable Goods; Quality; Time-inconsistency (search for similar items in EconPapers)
JEL-codes: D42 L12 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:665

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