Higher Rock Education - Economics Blog

Wednesday, March 21, 2018
Growing up, when something broke we fixed it. Today, it seems most things that break are replaced. We also use more that is disposable. Have we grown lazier, or does it make economic sense to replace rather than repair? We asked our British contributor to write about this trend and the decision process.

Repair Or Replace – Which Makes The Most Sense?

What do you do when something breaks? Let's imagine that it's a pen – a cheap ball-point one that you got for free when you signed up for insurance. Would it make any sense at all to try and get it repaired? Even buying the materials to fix it yourself would probably outweigh the cost of the pen. You would, more than likely, do what most people would do in that situation – throw the pen away and buy a new one!

What if it was something else that broke? Let's imagine it was the heel of your shoe. Now, this is a good pair of shoes, and you know a cobbler who guarantees their work. For just $10 you can get your shoe repaired and get at least another two or three years of wear out of it. Or you could opt to pay $60 for a new pair of shoes. In real life this decision will, of course, be affected by how much you like the shoes, but on paper a repair certainly makes financial sense, or the marginal benefit you derive from fixing your shoe vs the marginal cost of repairing it.

A third example. This time it's your phone that's faulty (you're having a very unlucky week, it seems). You've had the phone for almost a year already, and while getting it repaired will certainly be several times cheaper than buying a new phone altogether, you have to take into account the fact that every year or so you tend to upgrade your phone anyway, regardless of whether or not it's broken. Is a repair worthwhile when it might only buy you a few more months of usage?

The above examples all deal with personal possessions, but businesses have to make decisions like this too on a daily basis. In fact, for many businesses, the question of whether to repair or replace is even more pressing than it is for the individual. Instead of finding themselves without a pen, a shoe, or a phone, they might instead find themselves lacking a crucial piece of equipment; something that could lead to falling behind on production, missing deliveries, and perhaps losing money.

For this reason, most businesses will know exactly what to do when something breaks. If it's a disposable piece of equipment, they'll likely have a replacement in stock. If it can be repaired, they'll know who to call and exactly how much they can afford to pay before a repair is no longer a viable option. And, finally, if it's something that's due for an upgrade anyway, they'll likely be ready to negotiate with the supplier of their equipment.

Of course, times are always changing – and you may have heard people say that we're moving towards a more "disposable" society. This means that things that were once very expensive are slowly becoming so inexpensive that it's often cheaper to replace than to repair. Televisions are a good example. Just ten or twenty years ago a new TV was a huge investment, and when your set broke down you'd almost certainly try to get it repaired. Now, however, television sets are so cheap that you might well opt to buy a new one. On top of that, as repairs become less common, fewer repair services are available; and so the price of repair increases too. No wonder we often don't think twice about disposing of broken appliances!

Despite this, the next time something you own breaks, it can be an interesting exercise to try and think like a business. Is this a disposable item – one that you could perhaps buy in bulk to save time and money next time one breaks? How much longer can you expect it to last if you do repair it, and does that justify the cost? And finally (setting aside how much you might want a new phone) how much will an upgrade actually improve your productivity, and is it worth it when compared with the cost of a repair?

Question: What was the last thing you owned that broke? Did you repair it or replace it, and why did you choose the course of action you did? Did it make financial sense to do so?


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