Author(s)
Source
Portuguese Competition Authority Working Paper 18, 2007
Summary
This paper looks at how consumers can avoid the power of a monopoly.
Policy Relevance
Even when a firm is dominant, consumers can often avoid the harm of high prices by their own choices.
Main Points
- The value consumers place on some durable goods, such as software upgrades, depends on whether they already use the product.
- When a firm upgrades its product regularly, consumers can choose whether to buy the upgrade, or continue to use the earlier version.
- By not buying the upgrade, consumers can vitiate the seller’s market power. The firm is, in effect, competing with itself.