May 20, 2013 at 8:14 am #17824BoogieseanMember
Cartels, such as the light bulb cartel Phoebus, is often accused of planned obsolescence by lowering the life expectancy of the bulb. (I’m not getting into conflicting factors, such as luminous efficiency, duration, heat and use of electricity. Which indicate that there’s no right life expectancy, only a optimal. Also, if light bulbs had longer life, but lower luminous, we had to buy more bulbs to lit up our rooms as well. So this can go both ways)
My question is more about the economic implications of such a policy. I have heard that cartels, or monopolies, cuts output in order to increase prices. But, by cutting the life expectancy, they need to increase output. Which mean buying more resources and factors of production.
What would be more preferably for a cartel?
If, for example, the cartel have economies of scale, would it then nullifies the increased cost of production?
This might be a complicated question to answer, I don’t know 🙂 Thanks in advance.May 20, 2013 at 12:28 pm #17825jmherbenerParticipant
I don’t see what cartels and monopolies have to do with your questions. The entrepreneurs of every business enterprise regardless of the circumstances concerning other entrepreneurs use economic calculation to make their production decisions. They choose those lines of production that generate the greatest net income and invest in those lines of capital that generate the greatest net worth.
In your example, a light bulb company would estimate the revenues and costs from bulbs with different features, such as life expectancies, luminosity, color, etc., and produce those that generate the greatest net income. For each chosen line of production, the entrepreneur would ask a price that maximizes revenue, which would be at the mid-point of the demand curve for that line. It doesn’t matter what other entrepreneurs are doing, the best strategy for any entrepreneur is to restrict output and raise price to the mid-point of the demand curve for his product and no further.
In choosing its capital capacity, the light bulb company would estimate the asset values and liabilities associated with different configurations of capital capacity and choose those with the greatest net worth. Economies of scale is just one technical feature of the different options available. It is unlikely that an entrepreneur will choose a configuration with a significant range of unexploited economies of scale. To do so means that until he can expand production significantly he has invested in excess capacity.
Take a look at the relevant sections of Murray Rothbard’s book, Man, Economy, and State:May 20, 2013 at 3:05 pm #17826BoogieseanMember
Thank you, for your answer.
Maybe my question was a bit clumsy formulated. It might have been easier to just ask if planned obsolescence is a valid business model to increase output.
I used cartel and monopoly, just to eliminate how competition would affect the model.May 20, 2013 at 7:22 pm #17827jmherbenerParticipant
As you suggested, there’s no apriori way to know if producing and selling a less durable product generates more net income than producing and selling a more durable product. What we do know apriori is that entrepreneurs economize for society at large by selecting the alternative that renders the most net income. In producing any non-perishable consumer good, e.g., cars, computers, refrigerators, lawn mowers, houses, light bulbs, etc. entrepreneurs have a choice between producing more and less durable alternatives.
Take a look at F.A. Hayek’s rebuttal of Galbraith:
- You must be logged in to reply to this topic.