Product Durability in Markets with Consumer Lock-in
نویسنده
چکیده
This paper examines a two-period duopoly where consumers are lockedin by switching costs that they face in the second period. The paper’s main focus is on the question of how the consumer lock-in affects the firms’ choice of product durability. We show that firms may face a prisoners’ dilemma situation in that they simultaneously choose nondurable products although they would have higher profits by producing durables. From a social welfare perspective, firms may even choose an inefficiently high level of product durability. Journal of Economic Literature Classification Numbers: L13, D21
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