Keeping it fresh: Strategic product redesigns and welfare
Name
Knittel_Keeping it fresh.pdf
Description
Submitted version
Size
914.71 KB
Format
Adobe PDF
Checksum (MD5)
e5e5c87c215020cdf2ec9e105a77e500
Author(s)
Blonigen, Bruce A.
Soderbery, Anson
Knittel, Christopher Roland
Date Issued
July 2017
Journal
International Journal of Industrial Organization
Publisher
Elsevier BV
Citation
Blonigen, Bruce A. et al. "Keeping it fresh: Strategic product redesigns and welfare." International Journal of Industrial Organization 53 (July 2017): 170-214 © 2017 Elsevier B.V.
Version
Original manuscript
Abstract
Product redesigns happen across virtually all types of products, yet there is little evidence on the market and welfare effects of redesigns. We develop a model of redesign decisions in a dynamic oligopoly model and use it to analyze redesign activity in the U.S. automobile market. We find automobile model redesigns are frequent despite an estimated average cost around $1 billion. Our estimates also suggest that redesigns lead to large increases in profits and welfare due to the strong preferences consumers have for redesigns. We show that welfare would be improved if redesign competition were reduced, allowing redesign activity to be more responsive to the planned obsolescence channel. The net effect of these changes would reduce total redesigns by roughly 10%, increasing total welfare by roughly 3%. The high valuation that consumers put on newly-designed models drives frequent redesigns and gives automobile manufacturers fairly substantial market power, with a 2-to-1 ratio of firm profits to consumer surplus.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/j.ijindorg.2017.04.003
