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Tying, Compatibility and Planned Obsolescence


  • Miao, Chun-Hui


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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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Heinrich, Torsten, 2015. "A Replicator Dynamic and Simulation Analysis of Network Externalities and Compatibility Among Standards," MPRA Paper 67198, University Library of Munich, Germany.
    4. Jihui Chen, 2011. "Do Exclusivity Arrangments Harm Consumers?," Working Paper Series 20111001, Illinois State University, Department of Economics.

    More about this item


    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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