Implement a quality seal for long-lasting products to give transparency and a competitive advantage over planned obsolescence products.
Can consumer-facing transparency on longevity prevent the market failure where products with planned obsolescence maximize producer profits?
What actions do you propose?
There are two main reasons why consumers replace products: they are either
- outdated or
- out of order
Replacing outdated products is an innovation driver and might not even be an ecological thread when outdated items get sold to less innovation-prone users and being used second hand. In contrast the replacement of broken products always causes environmental damage and costs on the consumer side.
In order to maximize their profits, producers increase revenues and reduce costs.
- The cost minimum is reached when cost of poor quality equal the cost savings in production. Bottom line this means that products need to last their warranty period - but no longer.
- Higher revenues can be achieved with higher prices and higher sales volumes. One way to achieve higher sales volumes is to artificially 'break' products after their warranty period via a built-in 'planned obsolescence'. These products are designed to fail and so trigger replacement sales volume.
Considering both profit drivers, producers have no motivation to build long lasting, environmental and consumer-friendly products. Instead they will reach their maximum profit when their products fail right after the warranty period ends - for the disadvantage of consumers and the environment. This dilemma is just another flavor of the market failure described by George Akerlof et al. in his Nobel prize-winning paper: Markets for Lemons. Akerlof also outlines mechanisms to overcome this market failure: screening and signaling.
The proposed quality seal for long-lasting products would help producers of these goods to signal their benefits to potential customers or help consumers to screen the market for their products. This would allow producers to maximize their profits with long-lasting, consumer-friendly and environment-friendly goods via higher prices than via higher sales volumes for the replacement of broken goods.Online retailers and market places could support this transparency via their search and ranking algorithms.
Who will take these actions?
Where will these actions be taken?
How will these actions have a high impact in addressing climate change?
What are other key benefits?
What are the proposal’s costs?
The lemon markets dilemma: http://www.economist.com/node/813705
Planned obsolescence: http://www.economist.com/node/13354332