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Title: |
Planned Obsolescence as a Signal of Quality |
| Author: |
Choi, Jay Pil |
| Author
Affiliation: |
MI State U |
| Source: |
International Economic Journal, Winter 2001, v. 15, no. 4, pp. 59-79 |
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Publication Date: |
Winter 2001 |
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Abstract: |
This paper provides a new rationale for
planned obsolescence based on imperfect information about the quality of
durable goods. The source of the inefficient choice of durability lies
in the fact that the frequency of repeat purchases and the future
expected profit that can monitor the quality of the good is inversely
related to the durability of the good. Since the repeat purchases are
valued more for the high quality producer, the returns to reduced
durability is also greater for the high quality producer. This asymmetry
in the returns to reduced durability implies that planned obsolescence
can be used as a signal of quality. With leasing, however, the
durability choice incentive often runs in the other direction, and the
monopolist tends to choose excessively long lives for his product. This
is in sharp contrast to the durability literature where leasing restores
the incentive for the efficient choice of durability. |
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