Essays on product durability and oligopoly
Abstract
This research examines the choice of product durability by oligopolists and monopolists under a variety of settings. Essay one examines the durability choice of oligopolists under cooperative and non-cooperative behavior in a discrete time game theoretic model. Both finite horizon sub-game perfect and infinite horizon steady-state Nash strategies are calculated, assuming constant returns to scale and an exponential decay function for durability. The noncooperative models indicate the durability choice is independent of the market structure, given no entry. If entry is allowed the firm's optimal durability is not independent of the market structure. The cooperative models show the durability choice does not depend upon the market structure if the firms collude on both quantities and durabilities or only on durabilities. The second essay analyzes an oligopolistic firm's choice of product durability and cost-reducing innovation. Unlike previous analyses, the firms are allowed to choose the durability of their product, as well as an innovation level, in a Cournot quantity setting model. The models show the firm's optimal durability may be greater than, equal to, or less than the socially optimal durability depending upon innovation's impact on the marginal cost of durability. The analysis also indicates innovation levels can be maximized in markets with moderate concentration levels if the output is durable. Essay three presents a learning by doing model where the firm is allowed to choose product durability. The model indicates a monopolist's durability is socially optimal in the long-run if there is no decay to knowledge. If knowledge decays a monopolist will produce output with a larger durability than socially optimal, given the marginal cost of durability is non-decreasing in learning. If the marginal cost of durability is decreasing in learning then the monopolist may produce output with a greater or lower durability than is socially optimal, depending upon learning's net effect on the benefits and cost of durability.
Degree
Ph.D.
Advisors
Novshek, Purdue University.
Subject Area
Economic theory
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