Friday, April 9, 2010

let's call the calling off off?

[There] are many... cases where competition does not restrain monopoly as it is supposed to, but comforts and bolsters it by unburdening it of its more troublesome customers. As a result, one can define an important and too little noticed type of monopoly-tyranny: a limited type, an oppression of the weak by the incompetent and an exploitation of the poor by the lazy which is the more durable and stifling as it is both unambitious and escapable.
More generally, the performance of near-monopolistic service providers may be worse than that which would prevail if monopoly power were absolute. This has enormous and wide-ranging implications. The poor performance of a national railway system might persist indefinitely if the most demanding customers also have recourse to road transportation. Public schools might deliver worse learning outcomes if private or parochial options are available to the most quality conscious parents. A small decline in neighborhood quality could turn into a precipitous collapse if those most affected by it simply move elsewhere. And the ease with which common stock can be sold implies that the most vigilant shareholders will liquidate their holdings rather than attempt to improve the performance of management.

Rajiv Sethi on Albert Hirschman's Exit, Voice, and Loyalty, via Andrew Gelman

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