Miao, Chun-Hui (2008): Tying, Compatibility and Planned Obsolescence.
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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|
|Original Title:||Tying, Compatibility and Planned Obsolescence|
|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
|Depositing User:||Chun-Hui Miao|
|Date Deposited:||20. Feb 2009 15:40|
|Last Modified:||19. Feb 2013 01:11|
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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.
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