Planned Obsolescence and the R & D Decision

RAND JOURNAL OF ECONOMICS, Vol. 27, No. 3

Posted: 11 May 1998

See all articles by Michael Waldman

Michael Waldman

Cornell University - Samuel Curtis Johnson Graduate School of Management

Abstract

By investing in R & D, a durable-goods monopolist can improve the quality of what it will sell in the future, and in this way reduce the future value of current and past units of output. This article shows that if the firm sells its output, then it faces a time inconsistency problem, i.e., the R & D choice that maximizes current profitability does not maximize overall profitability. The result is that if output is sold rather than rented, then in its R & D decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability.

JEL Classification: L12, O31, O32, O33

Suggested Citation

Waldman, Michael, Planned Obsolescence and the R & D Decision. RAND JOURNAL OF ECONOMICS, Vol. 27, No. 3, Available at SSRN: https://ssrn.com/abstract=4056

Michael Waldman (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-8631 (Phone)

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