Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

R&D Technology Choice in Durable Goods Monopoly

Vol.24, No.2, June , 72–84



  •   (School of Economics, Yonsei University)

  •   (Lotte Insurance)

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Abstract  

This paper examines a durable-good monopolist's R&D decision in new product development. We show that the monopolist without commitment faces a time inconsistency problem concerning the choice of research technology, and as a result ends up choosing a safer research project and investing less than the commitment solution. This implies more frequent but smaller quality improvements in durable-good markets. It is shown that the time inconsistency problem in fact serves to increase social welfare by inducing the firm to choose a socially optimal research project.


Keywords
   durable-goods monopoly, R&D technology, planned obsolescence

JEL classification codes
   D42, L12, L15
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