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Product Durability in Markets with Consumer Lock-in

By Tobias Langenberg

Abstract

This paper examines a two-period duopoly where consumers are locked-in 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 non-durable 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.

Topics: Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, A1 - Allokationsmechanismen in Organisationen und Märkten, ddc:330
Year: 2009
OAI identifier: oai:epub.ub.uni-muenchen.de:13275
Provided by: Open Access LMU

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