Monopoly with endogenous durability. (Q5958248): Difference between revisions

A multi-period formulation for a durable-good monopoly is developed where production and durability are decision variables. When commitment to production is possible, neither the level nor the depreciation rate of initial stock has an effect on the selected efficient degree of durability. With time-consistent production policy, the optimal degree of durability is less than the efficient rate and typically increasing in the initial stock and initial degree of durability. When a monopolist can switch at any time from an inefficient non-durable to an efficient durable, there exists a cutoff durability above which only the non-durable will be produced; otherwise the efficient durable will be produced.