We can assume that golfers care the most about the performance of a new golf ball, especially the distance it travels. This can be inferred from the fact that the two-piece ball, which travels the most distance, is the most popular type of golf ball.
Currently the golfers care about differentiating the “good” used golf balls from the badly performing ones but the only way they can judge a golf ball’s performance is by visual assessment of the ball, which is not easy since the newer golf balls do not show visual damage even if their performance is degraded.
If Performance Indicator’s technology were universally adopted in golf balls, the golfers would depend on the gray color of a golf ball as the sole criterion of it ...view middle of the document...
The price of a used golf ball (P) would remain the same but its benefit to the customer (B) would increase since a golfer would assume all white used golf balls to be “good” performing. Since the grayed outer layer can be treated by refurbishing or retreading, the assumption by Performance Indicator that the quantity of the used balls would decrease is incorrect. The quantity (Q) would remain the same, and hence, the value created would increase for the used golf ball market, due to an increase in the consumer surplus.
New ball market
The white used golf balls also include those “bad” used golf balls that were manufactured before the Performance Indicator technology was introduced, and those that have been treated by the used golf ball manufacturers. The decrease in a golfer’s performance due to these “bad” white, used golf balls would make the golfer infer that the newly manufactured golf balls are still “good” and, hence, are to blame. This would decrease B, the benefit of a new golf ball to the customer.
In addition, the introduction of the Performance Indicator technology would also drive up C, the cost of manufacturing of new golf balls, due to added costs associated with extra raw materials, license and quality assurance. As inferred earlier, the quantity of sold used golf balls would remain the same, hence so would the quantity (Q) of the new golf balls that are sold. Lower B and higher C, Q remaining the same, means that the value created has decreased. Assuming the manufacturers would want to pass these extra costs directly to the customers, the price (P) of new golf balls would also increase, further diminishing the consumer surplus.