Author: Ramesh Shankar
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
When an improvable durable good (such as packaged software) saturates the market, the seller could be tempted to release new versions too frequently, hurting her profit. A novel contractual device, which we term as a Free New Version Rights warranty (Free NVR warranty), can help the seller overcome this temptation. In a two-period game-theoretic model involving a monopolist firm facing heterogeneous consumers, we derive conditions under which a rational monopolist can act suboptimally: she could face a commitment problem and offer the new version, even if doing so lowers her overall profit. Profit is hurt because when consumers expect a new version, (a) fewer consumers buy the initial version, and (b) the monopolist is forced to charge a lower price for the initial version. We show how the free NVR warranty, which requires the monopolist to offer consumers the right to receive the new version for free for a limited period, can solve her commitment problem. This is a new, surprising finding: by bundling new-version rights with the initial version, the monopolist at first appears to be denying herself future revenue. We derive conditions under which this apparently unprofitable action is optimal, which is our main contribution. When free NVR is offered, consumer surplus decreases and social surplus increases. This work extends prior literature on durable goods and the Coase conjecture to innovative durable goods with network externalities. The findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects, as well as for their consumers.
Innovation and the Durable Goods Monopolist
Author: Ramesh Shankar
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
When an improvable durable good (such as packaged software) saturates the market, the seller could be tempted to release new versions too frequently, hurting her profit. A novel contractual device, which we term as a Free New Version Rights warranty (Free NVR warranty), can help the seller overcome this temptation. In a two-period game-theoretic model involving a monopolist firm facing heterogeneous consumers, we derive conditions under which a rational monopolist can act suboptimally: she could face a commitment problem and offer the new version, even if doing so lowers her overall profit. Profit is hurt because when consumers expect a new version, (a) fewer consumers buy the initial version, and (b) the monopolist is forced to charge a lower price for the initial version. We show how the free NVR warranty, which requires the monopolist to offer consumers the right to receive the new version for free for a limited period, can solve her commitment problem. This is a new, surprising finding: by bundling new-version rights with the initial version, the monopolist at first appears to be denying herself future revenue. We derive conditions under which this apparently unprofitable action is optimal, which is our main contribution. When free NVR is offered, consumer surplus decreases and social surplus increases. This work extends prior literature on durable goods and the Coase conjecture to innovative durable goods with network externalities. The findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects, as well as for their consumers.
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
When an improvable durable good (such as packaged software) saturates the market, the seller could be tempted to release new versions too frequently, hurting her profit. A novel contractual device, which we term as a Free New Version Rights warranty (Free NVR warranty), can help the seller overcome this temptation. In a two-period game-theoretic model involving a monopolist firm facing heterogeneous consumers, we derive conditions under which a rational monopolist can act suboptimally: she could face a commitment problem and offer the new version, even if doing so lowers her overall profit. Profit is hurt because when consumers expect a new version, (a) fewer consumers buy the initial version, and (b) the monopolist is forced to charge a lower price for the initial version. We show how the free NVR warranty, which requires the monopolist to offer consumers the right to receive the new version for free for a limited period, can solve her commitment problem. This is a new, surprising finding: by bundling new-version rights with the initial version, the monopolist at first appears to be denying herself future revenue. We derive conditions under which this apparently unprofitable action is optimal, which is our main contribution. When free NVR is offered, consumer surplus decreases and social surplus increases. This work extends prior literature on durable goods and the Coase conjecture to innovative durable goods with network externalities. The findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects, as well as for their consumers.
Durable Goods Monopolist Under Technological Innovation
Author: Jonghwa Lee
Publisher:
ISBN:
Category : Competition, Unfair
Languages : en
Pages : 310
Book Description
Publisher:
ISBN:
Category : Competition, Unfair
Languages : en
Pages : 310
Book Description
Durable-Goods Monopoly with Endogenous Innovation
Author: Jae Hyon Nahm
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
While selling an existing product, a durable-goods monopolist may develop a new, improved product. The firm must consider the interaction between its intertemporal pricing and research and development (R&D) decisions. The interactions show a sharp dichotomy depending on pricing regimes. When it is optimal for the firm to continue to sell the old model along with the new model, the interactions disappear. However, when it is optimal for the firm to discontinue the sale of the old model after introducing the new model, the firm will face a time-inconsistency problem in its R&D decision.
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
While selling an existing product, a durable-goods monopolist may develop a new, improved product. The firm must consider the interaction between its intertemporal pricing and research and development (R&D) decisions. The interactions show a sharp dichotomy depending on pricing regimes. When it is optimal for the firm to continue to sell the old model along with the new model, the interactions disappear. However, when it is optimal for the firm to discontinue the sale of the old model after introducing the new model, the firm will face a time-inconsistency problem in its R&D decision.
Durable Goods Monopoly Under Technological Innovation
Product Innovation by a Durable-Good Monpoly
Author: Arthur Fishman
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We consider a durable-good monopolist that periodically introduces new models, each new model representing an improvement upon its predecessor. We show that if the monopolist is able neither to exercise planned obsolescence (i.e., artificially shorten the life of its products) nor to give discounts to repeat customers, the rate of product introductions is too slow - in comparison with the social optimum. On the other hand, if the monopolist is able to artificially shorten the durability of its products or to offer price discounts to repeat customers, it can raise its profit and, at the same time, implement the social optimum.
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We consider a durable-good monopolist that periodically introduces new models, each new model representing an improvement upon its predecessor. We show that if the monopolist is able neither to exercise planned obsolescence (i.e., artificially shorten the life of its products) nor to give discounts to repeat customers, the rate of product introductions is too slow - in comparison with the social optimum. On the other hand, if the monopolist is able to artificially shorten the durability of its products or to offer price discounts to repeat customers, it can raise its profit and, at the same time, implement the social optimum.
The Durable Goods Monopolist and Consistency with Increasing Costs
Durable Goods Monopoly with Entry of New Consumers
Durable Goods Monopoly with Privately Known Impatience
Durable Goods Monopoly and Futures Markets
Author: Ronald W. Anderson
Publisher:
ISBN:
Category : Durable goods, Consumer
Languages : en
Pages : 44
Book Description
Publisher:
ISBN:
Category : Durable goods, Consumer
Languages : en
Pages : 44
Book Description
The Microeconomics of Product Innovation
Author: Paul Stoneman
Publisher: Oxford University Press
ISBN: 019254862X
Category : Business & Economics
Languages : en
Pages : 269
Book Description
Economics has not given sufficient attention to the microeconomic analysis of innovation and technological change. Counteracting this imbalance, The Microeconomics of Product Innovation considers how the use of economic analysis can guide and inform the search for insight in the generation and adoption of new products synonymously labelled product innovation. Written in an accessible tone and restricting its analysis to the use of microeconomics, this book encompasses the definition of product innovation. It explores means of measurement and revealed patterns of the extent of product innovation; the economic analysis of the forces driving the demand for, the supply of, and incentives to generate new products; empirical evidence upon the determinants of the extent of product innovation; the diffusion of product innovations; product innovation and firm performance; price measurement under product innovation; product innovation and welfare; and public policy and product innovation.
Publisher: Oxford University Press
ISBN: 019254862X
Category : Business & Economics
Languages : en
Pages : 269
Book Description
Economics has not given sufficient attention to the microeconomic analysis of innovation and technological change. Counteracting this imbalance, The Microeconomics of Product Innovation considers how the use of economic analysis can guide and inform the search for insight in the generation and adoption of new products synonymously labelled product innovation. Written in an accessible tone and restricting its analysis to the use of microeconomics, this book encompasses the definition of product innovation. It explores means of measurement and revealed patterns of the extent of product innovation; the economic analysis of the forces driving the demand for, the supply of, and incentives to generate new products; empirical evidence upon the determinants of the extent of product innovation; the diffusion of product innovations; product innovation and firm performance; price measurement under product innovation; product innovation and welfare; and public policy and product innovation.