DURABILITY CHOICE UNDER DEMAND UNCERTAINTY

This paper examines the impact of demand uncertainty on a monopolist's durability choice within a simple two period framework. The analysis shows that the firm will produce the socially optimal durability if its output is rented and demand uncertainty is 'small' but that it may produce units with inefficiently short life spans if output is sold. However, the model reveals that this 'planned obsolescence' may be reduced from certainty levels depending upon the impact of uncertainty on future demand. Thus uncertainty may actually increase the firm's product durability relative to certainty levels.