DURABLE GOODS PRICING WHEN QUALITY MATTERS

This article considers a durable goods monopolist's choice of price an d durability in a setting where durability choice controls the speed w ith which quality deteriorates. This article derives three main result s. 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 mon opolist eliminates the market for secondhand goods.