What do we really know about durable goods monopolies? The Coase conjecture in economics and its relevance for the safety razor industry
There is now a very extensive and well-developed theoretical literature on the difficulties faced by durable goods monopolists in pricing their products. Surprisingly, the seminal article in this field did not come from a formal economic theorist but from Ronald Coase. Coase wanted to show that there are situations under which a pure monopolist might not be able to charge a monopoly price for durable products. The literature has since expanded to consider all manner of theoretical and formal conditions under which this hypothesis might or might not hold. And scholars have claimed that this body of work provides insights into everything from strategic leases to planned obsolescence and the problem of new model introductions. But how well has this literature really served to illuminate the problems facing actual business firms? While the safety razor industry has often been invoked as an example of durable goods pricing there has only been limited investigation into the actual behavior of the dominant firm in this industry – Gillette. We consider here the major ideas that have developed as an offshoot of the original Coase paper and the extent to which a case study of Gillette confirms or confounds this analysis.