TYING,COMPATIBILITY AND PLANNED OBSOLESCENCE* |
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Authors: | CHUN‐HUI MIAO |
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Affiliation: | Department of Economics, University of South Carolina, 1705 College St., Columbia, South Carolina 29208, U.S.A. email: miao@moore.sc.edu |
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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. |
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