NETWORK EXTERNALITY, COMPATIBILITY CHOICE, AND PLANNED OBSOLESCENCE

The paper attempts to provide a formal theory of planned obsolescence based on incompatible technologies in the presence of network externalities. We explore how a monopolist's ability to make the new product incompatible with the old version of a product constrains the optimal dynamic behavior of the monopolist. The social optimum and the market equilibrium are compared. Finally, the possibility of quality distortion is considered as a commitment mechanism to the future compatibility choice.