The proof of Theorem 2 is organized as follows. First, I show that the lower bound L(x, q) (i.e., the value function of the optimal stopping problem (15)) is well defined for all q ∈ [0, 1]. Then I show that the monopolist's equilibrium profits are equal to L(x, q) for all states (x, q).

An extensive body of literature argues for the benefits of planned obsolescence, the strategy of designing products with low durability to induce repeat purchases from the consumers. Yet, some firms avoid planned obsolescence and instead offer products with high durability. In this paper, we offer a demand-side rationale for a high-durability product design strategy: exclusivity-seeking consume...

In a competitive dynamic durable good market where sellers have private information about quality, I identify certain ineffi ciencies that arise due to heterogeneity in buyers’ valuations. Even if the market induces dynamic sorting among sellers and all goods are eventually traded, ineffi ciency can arise because high valuation buyers buy early when low quality goods are sold, while high qualit...

I study a pro…t-maximizing monopolist selling a durable good to buyers who arrive over time. Buyers are forward looking and their values for the good evolve stochastically. I …rst suppose that the seller commits to a path of posted prices in a stationary environment. Contrary to the case where values remain constant, optimal prices ‡uctuate over time. This is consistent with the use of sales or...

We document a basic characteristic of adverse selection in secondhand markets for durable goods: goods with higher observed quality may have more adverse selection and hence lower unobserved quality. We provide a simple theoretical model to demonstrate this result, which is a consequence of the interaction of sorting between drivers over observed quality and adverse selection over unobserved qu...

We develop a model to study the impact of changes in price or quality sensitivity on the firm as it introduces multiple generations of a durable product where unit costs are a convex function of quality. We incorporate the psychological processes of sensitization and habituation into a model of discretionary purchasing of replacement products motivated by past experience. When price sensitivity...

This paper specifies and estimates a dynamic model of consumer preferences for new durable goods with persistent heterogeneous consumer tastes, rational expectations about future products and repeat purchases over time. Most new consumer durable goods, particularly consumer electronics, are characterized by relatively high initial prices followed by rapid declines in prices and improvements in ...

In this paper we analyse the optimal infinite-horizon advertising policy of a monopolist firm in a market for durable goods, based on classic models by Vidale–Wolfe (Oper. Res. 1957; 5(3):370–381) and Nerlove– Arrow (Economica 1962; 29(114):129–142). A set of necessary conditions for optimality generalizing previous results is provided for the resulting non-convex system. In addition, we establ...

We study the impact of restrictions on trade in used goods between countries in the presence of a monopolistic seller that sells in two different national markets. Contrasting with the non-durable good case, free trade in used goods may be optimal for the firm. We provide a characterization of how movements towards trade liberalization, when implemented with a quota, will affect equilibrium out...

The "aftermarkets" literature focuses on two important questions: (1) do durable goods manufacturers that control their aftermarkets have an incentive to charge service prices that exceed costs?; (2) how significant (in a welfare sense) is this distortion? Unlike previous work, this paper addresses the latter question by explicitly modeling firm behavior under various market structure condition...