Next_Posts_Link() Leads to 404

On my index.php page I’m trying to show a limited amount of my custom post type ‘products’, and for some reason I can’t seem to get the next and previous links to work. They work fine on the single.php page. It’s what I click a products category (which is a taxonomy):

function product_category_taxonomy() {
	$labels = array(
		'name'              => __( 'Product Categories' ),
		'singular_name'     => __( 'Product Category' ),
		'search_items'      => __( 'Search Product Categories' ),
		'all_items'         => __( 'All Product Categories' ),
		'parent_item'       => __( 'Parent Product Category' ),
		'parent_item_colon' => __( 'Parent Product Category:' ),
		'edit_item'         => __( 'Edit Product Category' ),
		'update_item'       => __( 'Update Product Category' ),
		'add_new_item'      => __( 'Add New Product Category' ),
		'new_item_name'     => __( 'New Product Category' ),
		'menu_name'         => __( 'Product Categories' ),
	);
	$args = array(
		'labels' => $labels,
		'hierarchical' 	=> true
	);
	register_taxonomy( 'product-category', 'products', $args );
}
add_action( 'init', 'product_category_taxonomy');

I have to do a custom query right under get_header()

$paged = ( get_query_var( 'page' ) ) ? get_query_var( 'page' ) : 1;
	$products = new WP_Query(array(
		'post_type'		=>		'products',
		'posts_per_page'=>		2,
		'paged'			=>		$paged
	));

My navigation looks like this:

<div class="alignleft"><?php next_posts_link('&laquo; Older Entries', '1000') ?></div>
			<div class="alignright"><?php previous_posts_link('Newer Entries &raquo;', '1000') ?></div>

The ‘Older Entries’ link just leads to a 404 page and I can’t figure out why. What could the possibilities be?