Planned Obsolescence as an Incentive Device for Unobservable Quality

Abstract

Stressing the multi-dimensional character of quality, I propose a new theory of planned obsolescence as an incentive device that benefits consumers. I argue that planned obsolescence increases the frequency of repurchases and, therefore, enables consumers to punish producers faster for a lack of overall quality. This strengthens the producers’ incentives to provide adequate levels of quality. The theory implies a trade-off between a good's durability and its other unobservable quality attributes. This leads to an artificially high degree of obsolescence as compared to the first best where quality is observable.