I had to look up “MC” to be able to understand this. It means Marginal Cost.
EDIT I still don’t understand it, I think. My read is: someone named Coase theorized that monopolists of durable goods will actually sell their products at marginal cost because of some weird mind game with their customers (the obvious unwritten corollary being that monopolies are fine). This is obviously untrue and we all know plenty of examples (pharma anyone? plenty pills are mega durable). Nevertheless, somehow economists cheered at this theory and called it beautiful, despite how obviously ridiculous it is. But now the authors of this post debunked it with real data to, I hope, nobody’s surprise.
Some aspects of the conjecture make sense and are observable:
Consider e.g. Steam (digital video games): Prices are discounted over time because of "greed" (=> desire to sell the same product to customers that value it less than the first wave).
Customers do adapt to this, and expect future discounts (sales) at release date already, and defer their purchase accordingly (despite valueing it higher!).
But in reality, customers are not 100% rational, don't have perfect information (on seller strategy), and the product value (to buyers) changes over time too (typically mostly downward), so the base assumptions are difficult to find in reality.
I am not an economist, but I think that the theory is that prices do go to MC in a competitive market. Coase's theorem was for an uncompetitive market. (In fact, a monopoly - the most uncompetitive market possible.)
As far as I can tell that is indeed, "it". What is maybe more interesting is that it took this long to find data that shows it wrong given we have so many examples in history of it being in fact wrong.
I had to look up “MC” to be able to understand this. It means Marginal Cost.
EDIT I still don’t understand it, I think. My read is: someone named Coase theorized that monopolists of durable goods will actually sell their products at marginal cost because of some weird mind game with their customers (the obvious unwritten corollary being that monopolies are fine). This is obviously untrue and we all know plenty of examples (pharma anyone? plenty pills are mega durable). Nevertheless, somehow economists cheered at this theory and called it beautiful, despite how obviously ridiculous it is. But now the authors of this post debunked it with real data to, I hope, nobody’s surprise.
That can’t be it, can it?
Some aspects of the conjecture make sense and are observable:
Consider e.g. Steam (digital video games): Prices are discounted over time because of "greed" (=> desire to sell the same product to customers that value it less than the first wave).
Customers do adapt to this, and expect future discounts (sales) at release date already, and defer their purchase accordingly (despite valueing it higher!).
But in reality, customers are not 100% rational, don't have perfect information (on seller strategy), and the product value (to buyers) changes over time too (typically mostly downward), so the base assumptions are difficult to find in reality.
It's one of those "imagine a frictionless, perfectly spherical pig in a vacuum" theories that don't survive contact with reality.
Buyers don't just pop up on timestamp zero and remain unchanged. They anticipate price changes, potential new buyers come in, the market is dynamic.
I also don't understand why this only affects monopolies. The same logic should dictate that all products and services fall towards MC?
I am not an economist, but I think that the theory is that prices do go to MC in a competitive market. Coase's theorem was for an uncompetitive market. (In fact, a monopoly - the most uncompetitive market possible.)
As far as I can tell that is indeed, "it". What is maybe more interesting is that it took this long to find data that shows it wrong given we have so many examples in history of it being in fact wrong.