Are consumers forward looking? Evidence from used iPhones

ABSTRACT

This study examines the impact of planned obsolescence – the introduction of new models to make existing models obsolete – on secondary markets for mobile phones. Using data of over 320,000 used iPhones listings on Thailand’s largest online marketplace, we document that iPhone prices decrease with age, around 2.8–3.2% for each passing month. We find no evidence that the price decline accelerates after launches of new models (i.e. obsolescence), lending support to the view that consumer in durable goods markets are rational and forward looking.

KEYWORDS:

• Durable goods
• mobile phones
• product obsolescence
• forward-looking consumer

JEL CLASSIFICATION:

• D12
• L19
• L63

Acknowledgement

The authors would like to thank Tiwa York, Prakasit Singkateera and Kaidee for allowing and facilitating the use of their data.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Smartphones have become an indispensable part of modern life, as evidenced by rapidly increasing share of ownership. A study by Pew Research Center in 2017 shows that the share of Americans that own smartphones grew from 35% in 2011 to 77% in 2016. Deloitte Global predicts that used smartphones is a USD 17 billion market in 2016. The ability for consumers to resell their unneeded durable products allow them to retrieve salvage value that otherwise would have been wasted. Online marketplaces reduce transaction costs, which in turn facilitates activities in secondary markets, as explained by Gavazza, Lizzeri, and Roketskiy (2014).

² Model-memory combinations with fewer than 1,000 observations are dropped. We also winsorize prices at 0.1 and 99.9% levels.

³ The high adjusted R-squared values are not due the inclusion of fixed effects. For example, for the model in column 1 of Table 2, the removal of province-district fixed effects reduce the R-squared only to 77%, and further removal of the model-memory fixed effects to 72%.