This article is the first in a two-part series.
It is not uncommon to hear laments about the decreasing quality of things we purchase. It is likely that you have uttered, or at least have heard something along the lines of “products just don’t last like they did before.” Forty, even twenty, years ago, any economist or businessperson would have said that any such suspicious decline in quality and longevity of products is made-up, something consumers mistakenly believe. Though at the time the theory behind such a ‘planned’ decrease in product quality was and had been investigated and mathematically studied, it was considered mostly hypothetical. Today, this planned decrease in product durability is accepted as fact (by most) and has become, to an extent, standard business practice.
Planned Obsolescence
This theory is fittingly named ‘planned obsolescence.’ It is a common economic strategy of deliberately designing durable goods – cars, furniture, anything meant to be used long-term – with shorter-than-normal lifespans to push consumers to spend on the same product repeatedly. It is employed in oligopolistic and monopolistic markets. In an oligopolistic market, a few firms share a large portion of the market for one product, and each product will be similar but not identical to other firms’, and they can partially control the price of the product. In a monopolistic market, a single firm has the largest market share for a product, and no close substitutes of the product exist in the market. The monopolistic firm has complete control over the price of said product. This drives sales and profits for the firm (or firms), both because consumers do not have more durable options for the product, and because the firms can increase prices without lowering demand due to their market power to increase their margins.
Its origins date back to the Great Depression when real estate broker Bernard London coined the words and the strategy of ‘planned obsolescence’ in his 1932 paper. As a method to stimulate the economy, by boosting employment and increasing demand, planned obsolescence would entail putting artificial expiry dates on almost all durable goods. After the allotted time was met, the product would be considered by the government as obsolete, and the consumer would have to buy new, non-obsolete versions of the same product.
The nature of planned obsolescence has changed drastically since then, in large part due to the wide-spread use of electronic devices. As Stanford economist Jeremy Bulow stated in his 1986 paper An Economic Theory of Planned Obsolescence, “planned obsolescence is much more than a matter of durability; it is also and perhaps primarily about how often a firm will introduce a new product, and how compatible the new product will be with older versions.” Planned obsolescence takes a wide variety of shapes, far from its initial model, some examples of which include:
- Software updates that force the decrease of battery life and quality of electronic devices, especially phones, force consumers to buy a replacement.
For example, Apple, one of the ‘repeat offenders’ of planned obsolescence, paid $113 million to settle a consumer fraud lawsuit for slowing down and decreasing the speed of old phones after each iOS update. While Apple maintained that consumers didn’t need to replace their phones because of such planned obsolescence, courts in the US found that most customers had no choice as their phones became unusable after an update. This allegedly increased Apple’s sales by millions annually.
- Introducing new versions of a product or hardware that make the older versions of the product unusable (often seen in new textbook editions) or make the complementary products compatible with the older product obsolete (like removing headphone jacks from new phone models).
- Adding manufacturer-protected software that can remotely control product lifespan and prevent repairs, thus making the consumer pay for a replacement.
This is most often done through Digital Rights Management (DRM). This is a legal tool by which companies can copyright-protect digital products and services. It is used to digitally license their products, often using their own software, to prevent the user from tampering with or using non-manufacturer-provided parts in an electronic device. However, the tool is exploited by companies to practice planned obsolescence, wherein they remotely shut down otherwise fine products to force the consumer to buy a replacement, go to an authorized repair center, or commit the ‘illegal’ act of hacking into the software. A notable example is ink cartridges for printers. As companies don’t have high-profit margins on the printer sales, ink cartridges are highly-priced and drive profit margins for producers – in 2005, 50% of HP’s profits reportedly came from ink and toner sales. Through oligopolistic collusion, Canon, HP, and Epson among others have added DRM using electronic chips to ink cartridges, and use these chips to disable the cartridges even at 75% capacity, to require the user to buy another high-priced cartridge. The companies also use DRM to prevent the use of any ink cartridges other than their own and keep ink cartridge prices high.
- Software or application updates that make old hardware unusable or incompatible, blocking the user from accessing the old device or its features.
This is a practice observed in many companies, including Google, Microsoft, Facebook, and Apple, all of whom discontinue support for older hardware through app updates, effectively obsolescing certain devices.
- Using cheap materials to make a product (such as clothing, furniture) to save costs and decrease the durability of the product.
- With-holding design schematics of a durable good to prevent consumers from repairing or assembling the good without paying the manufacturer for repairs.
This is a recent, worrying example of planned obsolescence practices that emerged in hospitals during the pandemic when hospitals needed life-saving respirators to be repaired due to their low stock and the high number of patients who needed them. The producers of these devices refused to share their design, stating that only authorized repair was allowed. Such repairs would have left the hospitals without the medical equipment for days. When a hospital in Italy did not have enough valves for its respirators, local volunteers came up with their own design and 3D printed 100 of these valves, costing $1 per unit. They did this in a span of two days, while the manufacturer refused to share the product design or help them in any way.
Additionally, Apple also ensures consumers ca not repair the device, by not sharing design schematics and limiting the supply of original parts, forcing consumers to pay Apple for otherwise easy repairs. In many cases, the cost of repair is only slightly lower than buying a new Apple device, which leads to more sales.
What Led to Planned Obsolescence?
Planned obsolescence as a strategy has, to a large extent, unchecked power. To consider what may have led up to this point, there are two main parties to consider. The first is the firm itself, due to the degree of control they have in the market. Oligopolistic and monopolistic firms use the fact that consumers have limited choice to take any and all measures towards increasing their sales and ensuring consumers buy their products continually through forcibly making the product unusable over the long term, or difficult to fix, the examples of which were listed above.
The second party is the consumer. Many of the arguments regarding the consumer appeal to the nature of the consumerist society we live in today. Constant overconsumption and ever-increasing demand for the newest products on the market, regardless of their quality, are observed across the world. This allows manufacturers to exploit the fast-paced consumption habits by making products not last, feeding into the consumer’s need to keep buying. Similarly, some blame reaches the segment of the consumer market who prefer to or need to buy cheaper things. Budget products seem feasible at the time of purchase but often do not last. The success of these budget range products, however, signals to producers to cost-cut, and reduce the quality of goods to sell at lower prices.
On the other hand, there are luxury goods with built-in obsolescence that sell, too. Here, the consumer and producer both play a part. As Bulow wrote in his 1986 paper, firms will take multiple measures to overcome the “commitment problem,” in which firms need to ensure that buyers keep buying from them or stay ‘committed’ to them. They hence exercise multiple types of obsolescence, of which durability is one of the proxies. The other types of planned obsolescence manifest in marketing strategies, the rate at which a producer introduces products, and more. While compatibility and durability are the physical evidence of planned obsolescence, the other notable pieces of evidence are marketing and firm reputation. Luxury brands’ marketing encourages consumers to buy the shiniest, smartest, new product, making older products seem obsolete despite there being little change or improvement between different models of their products. The name of such obsolescence, which originates almost entirely from the consumer thinking they need to upgrade to a new product even if theirs is working fine, is ‘perceived obsolescence.’ On a closely linked note, the emphasis of consumerism on forming identities based on what you own fits well with luxury brands – consumers identify with their ownership of the best smartphone or the designer furniture, even if its quality, design, and durability are suboptimal.
We can conclude that planned obsolescence, which at the core is about restricting the consumer’s power to control the lifespan and functions of their own products, is approaching dangerous levels of omnipresence. A combination of factors from the producer and consumer side has led to the strategy’s success. In the next article, the actions taken by firms to advance this strategy will be focused on. The article will discuss subscription economies, secondhand and repair markets, and the importance of consumer autonomy.
Fiona is a first-year at Ashoka University, planning to major in economics. Her interests lie in microeconomic theory, and the impact of economic systems on the individual.
