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| Author: | Miao, C.H. |
| Title: | Tying, compatibility and planned obsolescence |
| Journal: | Journal of Industrial Economics
2010 : SEP, VOL. 58:3, p. 579-606 |
| Index terms: | obsolescence new products competition |
| Freeterms: | monopolistic competition durable goods |
| Language: | eng |
| Abstract: | According to the hypothesis of planned obsolescence, a monopolist producing durable goods without commitment power has an excessive incentive of introducing new products that make old units obsolete, and reducing its overall profitability. In this article, I reconsider the above hypothesis by investigating the role of competition in a monopolist's upgrade decision. The results indicate that when a system add-on is competitively supplied, a monopolist chooses to tie it to a new, only backward compatible, system, even if a commitment of not introducing the new system is possible and socially optimal. Tying eases a price squeeze. |
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