Planned Obsolescence: Examining Dynamic Consumer Preferences for Durability and Novelty

Abstract

In this thesis I examine whether consumers are inclined to see planned obsolescence as a real welfare-reducing issue by examining their relative preferences for product durability and novelty over time. I use data from the camera industry between 2004 and 2015 to estimate consumers’ elasticities for durability-increasing characteristics versus novelty or innovative characteristics. I compare changes in consumer preferences during the sample period with changes in product offerings in the same period.I implement four models: static market-level analysis from Berry (1994); dynamic household-level multinomial logit and nested logit models from McFadden (1973) and Goldberg (1995); static market-level random coefficients analysis from Berry, Levinsohn, and Pakes (1995); and a dynamic extension of Berry, Levinsohn, and Pakes (2003). I discuss the relative merits and shortcomings of each model in terms of their extensions into durable markets and dynamic household choice.In addition to price endogeneity, I also take product characteristics as endogenous in the short-run. I use a lagged-year instrument strategy to control for such endogeneity.I find mixed results, with more sophisticated models showing that consumers’ preference for characteristics corresponding to novelty increases relative to preference for characteristics corresponding for durability in the sample period. In particular, I find that consumers may be sensitive to the introduction of outlier products that specialize in either durability or novelty.