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TYING, COMPATIBILITY AND PLANNED OBSOLESCENCE -super-*

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  • CHUN-HUI MIAO

Abstract

According to the hypothesis of planned obsolescence, a durable goods monopolist without commitment power has an excessive incentive to introduce new products that make old units obsolete, and this reduces its overall profitability. In this paper, I reconsider the above hypothesis by examining the role of competition in a monopolist's upgrade decision. I find that, when a system add-on is competitively supplied, a monopolist chooses to tie the add-on to a new system that is only backward compatible, even if a commitment of not introducing the new system is available and socially optimal. Tying facilitates a price squeeze. Copyright 2010 The Author. The Journal of Industrial Economics 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 58 (2010)
Issue (Month): 3 (09)
Pages: 579-606

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Handle: RePEc:bla:jindec:v:58:y:2010:i:3:p:579-606

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