Journal
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH
Volume 61, Issue 3, Pages 939-954Publisher
TAYLOR & FRANCIS LTD
DOI: 10.1080/00207543.2021.2020929
Keywords
Planned obsolescence; warranty; product life cycle; quality management; optimal control; vintage structure
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This paper studies the trade-off between durability and reputation for a firm, and analyzes the impact of government policy on firm decision making. The research finds that the length of warranty period, consumer awareness of warranty, and uncertainty about product breakdown all have effects on product lifetime.
In determining the durability of its product a firm faces a trade off. Performing a policy of planned obsolescence by making their products less durable implies that the consumer needs to replace them earlier, which thus enhances demand. However, a lower quality of the product will result in a lower reputation, which in turn will affect demand negatively. In many cases, the government protects the consumer by implementing a warranty period. Our paper studies how a firm should optimally deal with this trade off and react to government policy. We obtain the following results. First, we find that the length of the warranty period has an inverted U-shaped effect on the product life time. Second, if more consumers are aware of the existence of a warranty period and ask for a free product replacement, this will increase the product life time. Third, increasing uncertainty about the breakdown of the product also has an inverted U-shaped effect on the product lifetime.
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