Damaged Durable Goods

Jong-Hee Hahn

No KERP 2002/21, Keele Economics Research Papers from Centre for Economic Research, Keele University

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 lowvaluation 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 nondurable goods where damaged goods are rarely observed but more likely to be Paretoimproving.

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)
Pages: 26 pages
Date: 2002-10
Note: This paper has been circulated with the title ‘‘Quality Degradation by a Durable-Goods Monopolist’’. I thank Roger Hartley and seminar participants at Keele and 2002 EARIE conference at Madrid for helpful discussions and comments.
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Published in Rand Journal of Economics, Vol. 37, Number 1, Spring 2006

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Related works:
Journal Article: Damaged durable goods (2006)
Working Paper: Damaged Durable Goods (2003)
Working Paper: Damaged Durable Goods (2002)
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