Tying, Compatibility and Planned Obsolescence
AbstractAccording 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13523.
Date of creation: 31 Dec 2008
Date of revision:
Compatibility; Durable Goods; Network Externalities; Planned Obsolescence; Tying;
Find related papers by JEL classification:
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-COM-2009-02-28 (Industrial Competition)
- NEP-NET-2009-02-28 (Network Economics)
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- Jihui Chen, 2011. "Do Exclusivity Arrangments Harm Consumers?," Working Paper Series 20111001, Illinois State University, Department of Economics.
- Jong-Hee Hahn & Jin-Hyuk Kim, 2012. "Monopoly R&D and Compatibility Decisions in Network Industries," Working papers 2012rwp-43, Yonsei University, Yonsei Economics Research Institute.
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