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Tying, Compatibility and Planned Obsolescence

Author

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  • Miao, Chun-Hui

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.

Suggested Citation

  • Miao, Chun-Hui, 2008. "Tying, Compatibility and Planned Obsolescence," MPRA Paper 13523, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13523
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    Citations

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    Cited by:

    1. 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.
    2. Jihui Chen, 2011. "Do Exclusivity Arrangments Harm Consumers?," Working Paper Series 20111001, Illinois State University, Department of Economics.
    3. Maruyama Masayoshi & Zennyo Yusuke, 2013. "Compatibility and the Product Life Cycle in Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 12(2), pages 131-155, June.
    4. Heinrich, Torsten, 2015. "A Replicator Dynamic and Simulation Analysis of Network Externalities and Compatibility Among Standards," MPRA Paper 67198, University Library of Munich, Germany.

    More about this item

    Keywords

    Compatibility; Durable Goods; Network Externalities; Planned Obsolescence; Tying;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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