I study the relative role of technological and physical obsolescence in the determination of the timing of adoption and the monopolist’s incentives to innovate. I show that depreciation of durable goods (physical obsolescence) makes decisions about the timing of adoption non-trivial.

If the monopolist cannot perfectly restrict the timing of purchases (using purchase deadlines, trade-in allowances, etc.) then its optimal pricing policy will inefficiently delay adoption, which in turn will reduce the incentives to innovate.