planned obsolescence

Planned obsolescence (in parts)

Vincent Geloso Economics , , ,

In response to my post on planned obsolescence, some have pointed out that a good is composed of many different inputs. If there are differences in the quality of the different parts of a good, then it might be rational to reduce its lifespan.

That is a important possibility which I should have considered. Imagine that good 1 is composed of parts A, B and C whose lifespan are 1, 2 and 3 years. The manufacturer of good 1 will converge one the lifespan which, in relative terms, will maximize his profits. If it costs more to bring part A to the lifespan of part C than it is to bring part C to the lifespan of part A, then a lower total lifespan would be appreciable.  That decision reduces the lifespan and the marginal cost which means that a greater quantity of goods can be consumed than if we “over-engineer” by bringing A to the level of C. This point was brought to my attention by Michael Makovi, a graduate student at Texas Tech University’s department of agricultural economics. In his words:

The corporate executive types told the engineers: If one part of the product can last X years but the other part of the machine can last Y years, then under-engineer the longer-lasting parts so that the whole product uniformly lasts the lowest-common-denominator of time, so that when the product fails, the customer didn’t waste money on over-engineering other parts of the product to last longer (…) engineers balked because it seemed immoral, but the executives assured them that it was in the customer’s own best interest. For example (…) if one part of your refrigerator lasts 10 years but another part lasts 20 years, and if the 10 year part cannot be replaced, so you have to replace the whole refrigerator at once, then over-engineering the other part to last 20 years is a waste of money.

Is planned obsolescence a good thing?

Vincent Geloso Economics , , , ,

There is this recurring argument that goods don’t last as long today as they did fifty years ago. My father berated me a few months ago about my economics by saying that back in his time, goods lasted longer. I questioned his data (there are signs that goods last as long as they did twenty or thirty years ago). This new ATTN video on Repair Cafes would have caused my father to rejoice greatly. However, I am going to ask a question here and go a step further: is planned obsolescence the symptom of a good thing?

Here is my argument (feel free to throw rocks after).

Improving the lifespan of a good requires a greater level of inputs which increases the marginal costs of the good. Producing a higher-quality good basically shifts the supply curve leftwards. Basically, we pay a little more for something that lasts longer. However, if we are living in a world of rapid technological innovation, what is the point of expending more resources on a good with a twenty-year lifespan but which will be obsolete two years?

Take my previous iPhone – it lasted three years before it simply decided to not work. In the three years between my old phone and my new phone, there was a rapid change in quality: more memory, better camera, faster processing, better sound. Imagine that Apple had invested billions to increase the life of my iPhone from three to nine years. Would I have bought that phone? In all honesty, it would depend on the price increase but the answer would have been closer to “no” than to “yes”. So in a way, Apple reaches a marginal consumer like me by lowering the price and turns me into a technology adopter. However, let’s imagine this from Apple’s perspective. Its in a race for its life against competitors who keep inventing new widgets and features that change the manner in which we consume. So, its choice is the following:

A: Increase lifespan, higher marginal costs and a leftward shift of supply that causes slightly higher prices and less demand. These resources cannot be expended on R&D and innovation
B: Shorten lifespan, lower marginal costs, lower prices, more goods consumed; more resources on R&D and innovation.

If everyone is inventing rapidly, then B is the dominant strategy. If innovation is zero, A is the dominant strategy. Basically, in a Schumpeterian world like I am describing, the short lifespan of goods is a symptom of great innovations and better days to come.

What do you think?