Durable Goods Pricing When Quality Matters

JOURNAL OF BUSINESS, Vol. 69, No. 4, October 1996

Posted: 3 May 1998

See all articles by Michael Waldman

Michael Waldman

Cornell University - Samuel Curtis Johnson Graduate School of Management

Abstract

This article considers a durable goods monopolist's choice of price and durability in a setting where durability choice controls the speed with which quality deteriorates. The article derives three main results. First, the price at which old units trade on the secondhand market limits what the firm can charge for new units. Second, because of this linkage between the prices for new and old units, the firm chooses a durability level that is below the socially optimal level. Third, the incentive to reduce durability can be sufficiently severe that the monopolist eliminates the market for secondhand goods.

JEL Classification: L12, L15

Suggested Citation

Waldman, Michael, Durable Goods Pricing When Quality Matters. JOURNAL OF BUSINESS, Vol. 69, No. 4, October 1996, Available at SSRN: https://ssrn.com/abstract=4103

Michael Waldman (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-8631 (Phone)

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