Relaxing whilst doing Competition Law is not an Oxymoron

Archive for October 12th, 2010

A French poll, non-profit-maximizing behavior and tacit collusion

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A poll that appeared last Friday on Le Monde offers some interesting data regarding issues that have attracted our attention in the past.

The poll´s main finding is that 71% of French consumers would not switch to a competing internet provider in the event of a price increase.  This further confirms that, as priorly discussed here, assuming profit-maximizing behavior on the part of consumers  -although perhaps inevitable and irreplaceable as a proxy –  is a hell of an assumption.

28% of those who would not switch in response to the hypothetical  price increase in the order of 2-3 euros a month seem not to perceive such increase as a big change. These consumers could be regarded as the per se inelastic part of demand.

If I refer to per se inelasticity it’s because it seems that there´s a greater source of inelasticity derived from consumers expectations with regards to the parallel behavior of competitors:  38% of those who would not switch argue that switching would be pointless given that all undertakings would simultaneously increase their prices too. Interestingly, past experiences of conscious parallelism could thereby be enhancing the rigidity of the market and the individual market power of certain undertakings.

The data reflects a, certainly justified, disbelief on the part of consumers regarding competition law’s ability to face the oligopoly problem (see here for a controversial exception). A chap you might know has written a bit on this topic.

(Thanks to Napoleón Ruiz for the pointer!)

Written by Alfonso Lamadrid

12 October 2010 at 1:46 pm

Posted in Guest bloggers