The neo-Luddite's lament: excessive upgrades in the software industry

We examine Two reasons why a monopoly supplier of software may introduce mo re upgrades than is socially optimal when the upgrade is backward but not f orward compatible, so users who upgrade reduce others' network benefits. On e explanation involves a commitment problem: profits and social welfare may suffer because ex post the monopolist will want to sell the upgraded produ ct to new consumers. The second involves consumer heterogeneity. Here overs upply arises from the difference between the externality that upgrades impo se on the marginal and average consumer, and from the effect of upgrades on sales of the base good.