| The decision to adopt a new durable good is sometimes influenced by the actions of other agents because the gains to adoption depend on how many others use the same product, i.e. network externalities. This effect may even appear for products without a physical network for two reasons. First, the availability of a support industry may depend positively on the number of final users. Second, as the user base grows, it becomes easier to find another user of the same product from whom one can learn how to use it. In these two cases, we may expect that the network externality may take some time to develop, because of inertia in the support industry or because learning takes time. Hence, we refer to these as lagged network externalities.; Because of this lag, individual agents have an incentive to delay their actions: by waiting for others to adopt first an agent can adopt a new product after the user base is established. Of course, if everyone tries to free-ride on others, the result is that agents wait longer than would be socially optimal.; We analyze the effect on macroeconomic aggregates of a microeconomic structure in which agents face a non-convex problem of machine replacement with vintage-specific network externalities. Because of the positive externality, agents have an incentive to cluster their actions, and thus macroeconomic aggregates do not smooth out the non-convexities at the microeconomic level. This clustering leads to adoption cycles, which, because of the incentives to delay, have a frequency that is lower than optimal.; To join both sides of the market, we also study the decision of a monopolist who is the seller of durable goods with lagged network externalities. Previous literature showed the incentives of a monopolist to introduce new models of the durable good faster than the socially optimal outcome, to induce old customers to again buy a new model, i.e. planned obsolescence. However, with lagged externalities, we find that the incentive of the consumers to delay their adoption of a new model has a stronger effect. Therefore, there is never planned obsolescence in equilibrium. |
