Planned Obsolescence As A Signal of Quality

This paper provides a new rationale for planned obsolescence based on imperfect information about the quality of durable goods. The source of the inefficient choice of durability lies in the fact that the frequency of repeat purchases and the future expected profit that can monitor the quality of the good is inversely related to the durability of the good. Since the repeat purchases are valued more for the high quality producer, the returns to reduced durability is also greater for the high quality producer. This asymmetry in the returns to reduced durabhilit y implies that planned obsolescence can be used as a signal of quality. With leasing, however, the durability choice incentive often runs in the other direction, and the monopolist tends to choose excessively long lives for his product. This is in sharp contrast to the durability literature where leasing restores the incentive for the efficient choice of durability. [L1, D8]