Durable Goods Theory for Real World Markets

Abstract

The early 1970s witnessed three major advances in durable-goods theory — Swan, Peter. 1970. “Durability of Consumption Goods.” American Economic Review. December, 60:5, pp. 884–94. Swan, Peter. 1971. “The Durability of Goods and Regulation of Monopoly.” Bell Journal of Economics. Spring, 2:1, pp. 347–57. and Sieper, E. and Peter Swan. 1973. “Monopoly and Competition in the Market for Durable Goods.” Review of Economic Studies. July, 40:3, pp. 333–51. on optimal durability, Coase, Ronald. 1972. “Durability and Monopoly.” Journal of Law and Economics. April, 15:1, pp. 143–49. on time inconsistency, and Akerlof, George. 1970. “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics. August, 84:3, pp. 488–500. on adverse selection. This paper surveys durable goods theory starting with these three contributions, where much of the focus is on recent literature and on models that explain real-world phenomena. In addition to the ideas found in the contributions of Swan, Coase, and Akerlof, topics covered include why producers sometimes practice “planned obsolescence,” the role of adverse selection in new-car leasing, and reasons for aftermarket monopolization.