The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry
AbstractWe examine two reasons why a monopoly supplier of software may introduce more upgrades than is socially optimal when the upgrade is backward but not forward compatible, so users who upgrade reduce others' network benefits. One explanation involves a commitment problem: profits and social welfare may suffer because ex post the monopolist will want to sell the upgraded product to new consumers. The second involves consumer heterogeneity. Here oversupply arises from the difference between the externality that upgrades impose on the marginal and average consumer, and from the effect of upgrades on sales of the base good.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 31 (2000)
Issue (Month): 2 (Summer)
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Other versions of this item:
- Glenn Ellison & Drew Fudenberg, 1999. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," Harvard Institute of Economic Research Working Papers 1870, Harvard - Institute of Economic Research.
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- Robert C. Feenstra & Christopher R. Knittel, 2009.
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in: Price Index Concepts and Measurement, pages 129-160
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- Anton, James J. & Biglaiser, Gary, 2013. "Quality, upgrades and equilibrium in a dynamic monopoly market," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1179-1212.
- Awrey, Dan, 2013. "Toward a supply-side theory of financial innovation," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 401-419.
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