TABLE OF CONTENTS Despite the significant progress made in our understanding of durability choice and market structure since Swan and Coase, major limitations still remain unaddressed in the study of durability. The following paragraphs describe some of these limitations, and, unlike Schmalensee s warning (from the opening paragraph of this chapter), they constitute an invitation for further research into this area still rich for theoretical and empirical contributions.
The economic literature has mainly focused on the durability of consumer goods. Little attention, if any, has been given to intermediate (Waldman, 2003) or capital goods. The issues pertaining to durability of capital goods, complex engineering systems, or even infrastructure are more complex and multidisciplinary in nature than the study of durability of consumer goods. The current economic thinking about durability choice is focused on profit maximization from sales of durable goods and does not include, for example, the potential for revenue generation from servicing the asset in the case of a capital good. Current economic analysis of durability choice may therefore be of limited applicability to the case of intermediate or capital goods.
The economic literature has addressed the choice of product durability under monopoly or (perfect) competition conditions. There are no studies, however, that look at the durability choice from the customer s perspective: if the customer had market power to make it formal, call this the durability choice under monopsony how would he or she choose the durability of the...
