Tying, Compatibility and Planned Obsolescence Chun-Hui Miao

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 pro\u85tability. In this paper, I re-consider the above hypothesis by examining the role of competition in a monopolists upgrade decision. I \u85nd that, when a system add-on is competitively supplied, a mo-nopolist 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 op-timal. Tying facilitates a price squeeze. (JEL D40, L00, L40