the role and growth of new car leasing theory and evidence abstractthere has been substantial growth in rates of new car leasing over the last few decades building on recent theoretical research we construct a model of the leasing decision in which leasing mitigates adverse selection and reduces transaction costs but moral hazard limits its use in our model the prevalence of leasing is related to new car reliability which suggests that the recent growth in leasing is at least partly due to improvements in new car reliability we use this model to derive testable implications and then conduct an empirical analysis to investigate whether the operation of the new and used car markets is consistent with the predictions of this theoretical approach our empirical results support the theoretical predictions of our model in particular we provide direct evidence that leasing mitigates adverse selection and that an important factor in the growth in new car leasing rates has indeed been the growth of new car reliability

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

why would a durable good monopolist also produce a cost inefficient nondurable good abstract we develop both commitment and time consistent stationary policies for a monopolist who produces a mixture of goods distinguished by production costs and degree of durability under commitment only the cost efficient durable good is produced and the monopoly output is realized each period for the time consistent stationary case there is an interval for the degree of durability where only the durable good is produced and a higher non overlapping interval where both the cost efficient durable and the cost inefficient nondurable good are produced for any period length when the degree of durability is such that both durable and nondurable goods are provided combined output is less than the competitive output and decreases in the degree of durability approaching the single period monopoly output when both goods are produced the coase conjecture does not hold

the intertemporal consequences of unauthorized reproduction of intellectual property in an intertemporal framework the harm to firms from unauthorized reproduction of their products may be significantly greater than that predicted by most static models copying by some consumers reduces the appropriable surplus from all consumers including those consumers lacking any propensity to copy somewhat paradoxically however the commitment value of copies may also imply that profits are higher with copying than without copying it is therefore suggested that firms may prefer differential copyright enforcement and that the commitment value of copies may offer a strategic explanation for free giveaways of abridged versions of intellectual property and vertical product differentiation more generally

do converters facilitate the transition to a new incompatible technology a dynamic analysis of converters abstract this paper analyzes the process of transition in standards between incompatible technologies when converters are available contrary to a common presumption that converters facilitate the transition from an old technology to an otherwise incompatible new technology i find circumstances in which the possibility of transition is blockaded by the existence of converters in the welfare analysis of converters a distinction is made between ex ante and ex post efficiency effects finally i also analyze the equilibrium behavior in the provision of converters and compare it to the socially optimal outcome

credible signals of the release of new versions i introduction many products are marketed some time after they have been developed for instance a new smartphone may be developed and tested well before it is available for purchase a new car might be prototyped and driven months before it comes to the market indeed a firm will often have several products concurrently in a development pipeline consumers may know a product is in that pipeline without knowing its progress towards the market because the outcome of such development and testing is not visible to outsiders the firm knows whether it can market a product before consumers do consumers are uninformed about when and if the new product will be marketed to them economists have long recognized that the present demand for durable goods depends on future prospects such as the future price or the introduction of an improved version 1 the existence of such an improved version is often the seller s private information if consumers anticipate a new version some will defer purchases until the new version is available and the seller will face low demand for the present version disclosing the new version is not in a monopoly seller s interest a seller whose good does not have a new version would also like to communicate that fact to consumers while a firm with a successful product innovation can credibly disclose the new version with relative ease a firm that has failed to develop a new product could have great difficulty convincing consumers that the product has no new version in such situations it is important to examine whether prices can inform consumers whether a new version will be marketed in the near future in a recent paper choi et al 2010 developed a model with a risky product development process in which reputation effects allow cheap talk announcements to signal successful product development to consumers an announcement induces consumers to delay or divert purchases to the announcer s coming product which increases the announcer s profit and can improve welfare 2 in their model the announcer and her non innovative rivals supply the original good competitively because of this an announcement does not reduce profit on the current version this paper will focus on markets where the seller has substantial market power before innovating so announcing a successful product development has a cost in terms of current revenue further because we attend to prices as signals this model may also apply to markets where a long run relationship between consumers and firms may not be sustainable another objective of this paper is to examine the welfare effects of mandatory disclosure a government policy mandating disclosure of any new version is an alternative means of informing consumers 3 as long as firms are not willing to lie to the government such a policy would credibly communicate whether a new version of a durable is coming mandatory disclosure would bring about full information as consumers are informed about any improved future version before observing the price of the current version in this paper we explore a two period model of a durable good monopoly in which consumers are initially uninformed about whether there will be a new version of the current good the monopoly seller is privately informed if he will be able to market an improved version in the second period in the first period consumers must decide whether to purchase the good now or wait for an upgraded version they may be able to infer from the price of the current version whether the seller will bring a new version to the market it is important to see first whether prices can serve as signals and second how welfare compares between any signaling outcome and a full information benchmark corresponding to mandatory disclosure we will show that there is a unique equilibrium supported by intuitive beliefs in this equilibrium the seller s private information about an improved version is completely revealed to consumers

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

a new perspective on planned obsolescence automobile manufacturers have long had a policy of introducing annual style changes into their new model cars textbook publishers have a policy of periodically bringing out revised editions of their popular books recently ibm changed the operating system used in its personal computers causing a reduction in the compatibility between its old and new machines if one were to ask the typical man in the street to explain what is happening in these markets he would not hesitate before giving the following answer in economists terminology he would say that for the above firms the incentive to introduce new products that make old units obsolete is too high i e the firms have an incentive to practice planned obsolescence of course just as is true for the man in the street economists have also long observed and commented on the speed with which new products are introduced for example galbraith 1958 suggests that the annual model changes of automobile manufacturers are socially wasteful while fisher griliches and kaysen 1962 provide empirical estimates of the costs of these changes there have also been numerous theoretical attempts to model the idea of planned obsolescence or the related idea of killing off the market for secondhand goods but most of these models have in fact considered the choice a monopolist faces concerning how much durability to build initially into his product rather than the monopolist s incentive to introduce new versions of his product over time 1 in this paper i consider planned obsolescence from the standpoint of a firm that can change the nature of what it sells and show that the man in the street is in fact correct in many settings the incentive for a durable goods monopolist to introduce new products that make old units obsolete will be above that which is socially optimal

the provision of two way converters in the transition process to a new incompatible technology this paper analyzes the dynamic provision of converters in the transition process between two incompatible technologies i derive the equilibrium behavior in the provision of converters and compare it to the socially optimal outcome i find that there can be two types of market inefficiency in the provision of converters first converters can be supplied by the wrong group second the timing of provision may be too late since the providers of converters ignore the positive externality that their provision would confer on the users of the rival technology

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

durable goods market structure and the incentives to innovate a commonly cited finding in the innovation literature is that a monopoly tends to innovate too little this paper demonstrates that a monopoly may devote more resources to innovation than is socially optimal if it produces a durable good this possibility occurs because durability creates new innovation incentives once an initial stock of a durable good has been produced the monopoly faces a residual demand for the good innovation may allow the monopoly to more profitably exploit this residual demand and this ability may lead the monopoly to devote more resources to innovation than is socially optimal copyright 1987 by the review of economic studies limited

local network externalities and market segmentation this paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction it departs from the standard katz shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents it shows that even if rival firms engage in bertrand competition this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits the analysis also shows that some graphs or network structures do not permit such segmentation while for others there are easy to interpret conditions under which market segmentation obtains in equilibrium c 2009 elsevier b v all rights reserved

a note on welfare in the durable goods monopoly depending upon the shape of the rental demand curve facing a durable goods monopolist social welfare may be raised or lowered by requiring the monopolist to sell rather than rent its output indeed the equilibrium under rentals may pareto dominate the equilibrium under sales copyright 1989 by the london school of economics and political science

exclusionary vertical contracts with multiple entrants abstract this paper constructs a model of anticompetitive exclusive dealing in the presence of multiple entrants unlike the single entrant model in previous literature an entrant competes not only with the incumbent to deal with buyers but also with other entrants the competition among entrants then serves as a commitment such that low wholesale prices are offered to buyers when they deviate from exclusive contracts we argue that this commitment effect becomes a barrier to exclusive dealing and that the results differ drastically from the predictions of the single entrant framework

three object two bidder simultaneous auctions chopsticks and tetrahedra symmetric equilibria are constructed for a class of symmetric auction games the games all have two identical bidders bidding in three simultaneous first price sealed bid auctions for identical objects information is complete and the bidders marginal valuations increase for the second object and then decrease for the third in all cases the support of the mixture that generates the equilibrium is two dimensional and it surrounds a three dimensional set of best responses this appears to be a previously unknown structure

keeping it fresh strategic product redesigns and welfare abstract product redesigns happen across virtually all types of products yet there is little evidence on the market and welfare effects of redesigns we develop a model of redesign decisions in a dynamic oligopoly model and use it to analyze redesign activity in the u s automobile market we find automobile model redesigns are frequent despite an estimated average cost around 1 billion our estimates also suggest that redesigns lead to large increases in profits and welfare due to the strong preferences consumers have for redesigns we show that welfare would be improved if redesign competition were reduced allowing redesign activity to be more responsive to the planned obsolescence channel the net effect of these changes would reduce total redesigns by roughly 10 increasing total welfare by roughly 3 the high valuation that consumers put on newly designed models drives frequent redesigns and gives automobile manufacturers fairly substantial market power with a 2 to 1 ratio of firm profits to consumer surplus

dynamic pricing and warranty policies for products with fixed lifetime abstract we consider a repairable product with known market entry and departure times a warranty policy is offered with product purchase under which a customer can have a failed item repaired free of charge in the warranty period it is assumed that customers are heterogeneous in their risk attitudes toward uncertain repair costs incurred after the warranty expires the objective is to determine a joint dynamic pricing and warranty policy for the lifetime of the product which maximizes the manufacturer s expected profit in the first part of the analysis we consider a linearly decreasing price function and a constant warranty length we first study customers purchase patterns under several different pricing strategies by the manufacturer and then discuss the optimal pricing and warranty strategy in the second part we assume that the warranty length can be altered once during the product lifetime in developing a joint pricing and warranty policy numerical studies show that a dynamic warranty policy can significantly outperform a fixed length warranty policy

damaged durable goods i analyze a durable goods monopolist s incentives to introduce a damaged good a stripped down version of the original good in an infinite horizon framework the damaged good helps the monopolist to mitigate the coasian time inconsistency problem however it may lead to a welfare reduction low valuation buyers are induced to purchase the low quality damaged good early rather than buy the high quality original good later and when the players are patient the surplus loss from quality reduction outweighs the gain from earlier consumptions this welfare result contrasts with the previous literature based on a static framework