Abstract

http://ssrn.com/abstract=1868323
 
 

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The Limits of Planned Obsolescence for Conspicuous Durable Goods


Vishal Agrawal


Georgetown University - McDonough School of Business

Stelios Kavadias


University of Cambridge - Judge Business School

Beril Toktay


Georgia Institute of Technology - College of Management; INSEAD - Technology and Operations Management

May 27, 2015


Abstract:     
An extensive body of literature argues for the benefits of planned obsolescence, the strategy of designing products with low durability to induce repeat purchases from the consumers, and allow the firm to sell a larger volume. Yet, several firms avoid planned obsolescence and instead offer products with high durability. In this paper, we offer a demand-side rationale for a high-durability product design strategy: the exclusivity-seeking consumer behavior associated with conspicuous consumption. In the presence of consumers who value exclusivity, we find that firms benefit from designing products with higher durability in conjunction with a high-price, low-volume introduction strategy. A higher durability in such a context leads to greater resale value, allowing the firm to charge a higher price and lower the sales volume to achieve the product exclusivity valued by the consumers. This contrasts with the planned obsolescence strategy that capitalizes on the high sales volume achieved by setting a low new product price. We also show that offering higher durability and charging a higher price are complementary levers to respond to consumer snobbishness. Our analysis unearths insights regarding the effect of exclusivity-seeking behavior on a firm's demand and pricing. We show that firms' durability choice may explain the joint increase in price and demand for conspicuous goods.

Number of Pages in PDF File: 26

Keywords: durable products, product obsolescence, exclusivity-seeking consumers, demand externalities


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Date posted: June 20, 2011 ; Last revised: May 28, 2015

Suggested Citation

Agrawal, Vishal and Kavadias, Stelios and Toktay, Beril, The Limits of Planned Obsolescence for Conspicuous Durable Goods (May 27, 2015). Available at SSRN: http://ssrn.com/abstract=1868323 or http://dx.doi.org/10.2139/ssrn.1868323

Contact Information

Vishal Agrawal (Contact Author)
Georgetown University - McDonough School of Business ( email )
3700 O Street NW
Washington, DC 20057
United States
Stylianos Kavadias
University of Cambridge - Judge Business School ( email )
Trumpington Street
Cambridge, Cambridgeshire CB2 1AG
United Kingdom
HOME PAGE: http://www.jbs.cam.ac.uk/research/kavadiass.html
Beril Toktay
Georgia Institute of Technology - College of Management ( email )
800 West Peachtree St., NW
Atlanta, GA 30308
United States
INSEAD - Technology and Operations Management ( email )
Boulevard de Constance
77 305 Fontainebleau Cedex
France
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