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Market Structure and the Durability of Goods

Andrew B. Abel^1,2

¹ National Bureau of Economic Research · ² Harvard University

This paper compares the durability of goods produced in competitive and monopolistic markets. Durability is chosen to minimize the cost of providing a given present value of flow of services over the life of the durable. As pointed out by Swan, under constant returns to scale, the cost-minimizing durability is independent of the level of output; thus competitive firms will choose the same durability as a monopolist, even though they would produce different levels of output. In this paper, we relax the assumption of constant returns to scale and derive more general conditions under which optimal durability is independent of the level of output. We also demonstrate that with a particular specification of external diseconomies of scale, the monopolist will produce goods with greater durability than would be produced by competitive firms. 1.

DOI

10.2307/2297765

Volume

50 (4)

Pages

625

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