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Planned obsolescence and monopoly undersupply

  • Miao, Chun-Hui

This paper examines the welfare implications of planned obsolescence in situations where the traditional monopoly undersupply exists. We find that the monopolist's introduction of incompatibility between successive generations of products alleviates the monopoly undersupply problem and may therefore generate higher social welfare than compatibility. Paradoxically, the stronger the network effects, the more likely welfare will increase as a result of incompatibility. Our result also extends to two-sided markets characterized by indirect network effects.

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File URL: http://www.sciencedirect.com/science/article/B6V8J-4YTV7TM-2/2/92c7f0b4adb437b771d3e31545d9a079
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Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 23 (2011)
Issue (Month): 1 (March)
Pages: 51-58

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Handle: RePEc:eee:iepoli:v:23:y:2011:i:1:p:51-58
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505549

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  1. Doganoglu, Toker & Wright, Julian, 2006. "Multihoming and compatibility," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 45-67, January.
  2. Miao Chun-Hui, 2009. "Limiting Compatibility in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 8(4), pages 1-19, December.
  3. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  4. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  5. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
  6. Casadesus-Masanell, Ramon & Ruiz-Aliseda, Francisco, 2009. "Platform competition, compatibility, and social efficiency," IESE Research Papers D/798, IESE Business School.
  7. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February.
  8. Kumar, Praveen, 2002. "Price and quality discrimination in durable goods monopoly with resale trading," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1313-1339, November.
  9. Jae Nahm, 2004. "Durable-Goods Monopoly with Endogenous Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 303-319, 06.
  10. Choi, J.P., 1991. "Network Externality, Compatibility Choice, and Planned Obsolescence," Discussion Papers 1991_67, Columbia University, Department of Economics.
  11. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  12. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
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