Quality, Upgrades and (The Loss of) Market Power in a Dynamic Monopoly Model

Competition Policy and Antitrust

Article Snapshot

Author(s)

James Anton and Gary Biglaiser

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.

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