Market power and dominant firms Flashcards
1
Q
What is the Lerner index formula
A
L = (P-MC)/p = 1/E
2
Q
What is a durable good?
A
Lasts a number of periods and can be used more than once
3
Q
What 2 problems does durability create for a monopolist?
A
- Monopolist is in competition with itself
- Price consumers are willing to pay depends on price tomorrow
4
Q
What was the Coase conjecture?
A
Coase (1972) conjectured product durability might eliminate market power given good lasts forever and price changes happen quickly
5
Q
What are strategies to avoid the Coase conjecture?
A
- Leasing
- Invest in reputation - Disney reputation for “Short time only”
- Most favoured customer clause
- New customers
- Reduce a good’s durability
