Tying, Compatibility and Planned Obsolescence

Miao, Chun-Hui (2008): Tying, Compatibility and Planned Obsolescence.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Compatibility, Durable Goods, Network Externalities, Planned Obsolescence, Tying
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies; L - Industrial Organization > L4 - Antitrust Issues and Policies > L40 - General

References

Bresnahan, T.F., Network E¤ects andMicrosoft, 2001. SIEPR Discussion Paper No. 00-51.

Carlton, D.W. and M.Waldman, The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries,Rand Journal of Economics, 2002, XXXIII, 194�220�.

and , Tying, Upgrades, and Switching Costs in Durable-Goods Markets, 2006. NBER Working Paper.