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A Note On Durable Goods Monopolists: Commitment To Forward Compatibility

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  • SANG‐HO LEE
  • LE DUC NIEM

Abstract

This note re-examines the previous results on durable goods monopolists under the time inconsistency problem that the firm tends to make its goods less compatible as a “planned obsolescence” strategy in the presence of network effects. We find that the possibility of the commitment to forward compatibility is profitable to the monopolist, depending upon the degree of technological progress and network effects. Therefore, contractual commitments that are frequently feasible and observed in real‐world markets make the society better off.

Suggested Citation

  • Sang‐Ho Lee & Le Duc Niem, 2010. "A Note On Durable Goods Monopolists: Commitment To Forward Compatibility," The Japanese Economic Review, Japanese Economic Association, vol. 61(4), pages 558-564, December.
  • Handle: RePEc:bla:jecrev:v:61:y:2010:i:4:p:558-564
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    File URL: http://hdl.handle.net/10.1111/j.1468-5876.2009.00506.x
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    References listed on IDEAS

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    1. Glenn Ellison & Drew Fudenberg, 2000. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 253-272, Summer.
    2. Drew Fudenberg & Jean Tirole, 1998. "Upgrades, Tradeins, and Buybacks," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 235-258, Summer.
    3. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 729-749.
    4. Sang-Ho Lee, 2006. "Durable Goods Monopolists And Backward Compatibility," The Japanese Economic Review, Japanese Economic Association, vol. 57(1), pages 141-155.
    5. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 167-182, June.
    6. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    7. Michael Waldman, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 273-283.
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    More about this item

    Keywords

    L1 ; D4 ;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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