Anastas P. Tenev (Corvinus University of Budapest) will present the paper “Planned vs. Dynamic Obsolescence ” (Authors: Vyacheslav Arbuzov, Toygar T. Kerman, Anastas P. Tenev) on March 18th at 15:00 PM, room QA323.
Abstract:
A durable-goods monopolist might practice planned obsolescence by deliberately producing goods that have short lifespans to ensure repeat purchases in the future. We consider a two-period model where a durable-goods monopolist might engage in “dynamic obsolescence” by changing the durability of the good in period 2 from what was planned in period 1 once consumers have bought it. This could be the case with goods that need repeated software updates. The monopolist faces a time-inconsistency problem due to misaligned incentives across time. We show that, given the opportunity to do so, the monopolist adjusts the durability across periods and chooses a lower durability than the initially chosen one in the subgame perfect Nash equilibrium of the game. Moreover, we show that if the monopolist could commit to the initially chosen durability, then he would achieve a higher profit compared to the case of dynamic adjustment of durability.