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$s$ --Economic Determinism ()

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An Economic theory of Planned Obsolescence (Jeremy Bulow)

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An Economic theory of Planned Obsolescence
          Jeremy Bulow #3604   Created 04/19/2014   Updated 05/20/2014

The quarterly Journal of Economics, November, 1986, John Wiley & Sons.

Suppliers of durable in imperfectly competitive markets have been suspected of producing goods with uneconomically short useful lives, so that consumer will have to repurchase more often. 729

Except under unusual cost conditions a monopolist not threatened by entry will produce goods with inefficiently short useful lives. This result is closely linked to the observation that a durable goods monopolist will prefer to rent, rather than sell its output.730

Therefore, while monopolists will opt for inefficiently short useful lives, oligopolists may choose either uneconomically short or long lives, depending on their technologies and market conditions. there is also an incentive to increase durability to deter entry. 730

There is generally an incentive for oligopolists to collude to reduce durability, below noncooperative levels. 730

While competitive firms will choose the efficient level of durability, the monopolist's profit-maximizing rate of durability is shown to equal the efficient level plus a term that is generally negative. 731

Oligopolists must add an extra term to the monopolist's durability choice, generally causing them (in the quantity competition) to decrease the rate of obsolescence. 731

Increasing the salas-rental ratio is the strategic equivalent of increasing durability. 731

The analysis also predicts that as a monopolist's markets become more competitive, the firm will increase its sales-rental ratio. 713


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