1996/01/01 by Michael Waldman
Business, Management and Accounting · #Digital Platforms and Economics
paper · doi:10.1086/209702
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. This article derives three main results: the price at which old units trade on the secondhand market limits what the firm can charge for new units; 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; and the incentive to reduce durability can be sufficiently severe that the monopolist eliminates the market for secondhand goods. Copyright 1996 by University of Chicago Press.