TYING, COMPATIBILITY AND PLANNED OBSOLESCENCE

Chun-Hui Miao

Journal of Industrial Economics, 2010, vol. 58, issue 3, 579-606

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.

Date: 2010
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https://doi.org/10.1111/j.1467-6451.2010.00425.x

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Working Paper: Tying, Compatibility and Planned Obsolescence (2008)
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