A Beautiful Theory Falls to Ugly Data
A recent paper challenges the Coase Conjecture, which suggests that monopolists of durable goods will eventually lower prices to marginal cost. The study, focusing on e-book prices, found that prices do not rapidly fall to marginal cost and sales continue over multiple periods. This empirical evidence contradicts the theoretical predictions of the conjecture, leading to a rejection of its validity.
- ▪The paper titled 'A Test of the Coase Conjecture Using Prices of Electronic Books' was published by Alex Tabarrok and Tim Groseclose.
- ▪The study found that e-book prices start above marginal cost and do not decline monotonically over time.
- ▪The authors reject the Coase Conjecture, which implies that many patents and copyrights are essentially worthless.
Opening excerpt (first ~120 words) tap to expand
A Beautiful Theory Falls to Ugly Data by Alex Tabarrok May 26, 2026 at 7:16 am in Books Economics Media My latest paper, A Test of the Coase Conjecture Using Prices of Electronic Books, with the excellent Tim Groseclose, has just been published. The Coase Conjecture is another one of Coase’s little ideas — the original paper is six pages — that has spawned hundreds of follow-up papers and thousands of citations. The idea is simple. A monopolist of a durable good has a time-inconsistency problem. Set the monopoly price in period 1 and he will be tempted in period 2 to cut the price and mop up the customers whose valuations sit between the period-1 price and MC. But the same logic applies in period 2, and again in period 3, and so on — eventually the price unravels to MC.
…
Excerpt limited to ~120 words for fair-use compliance. The full article is at Marginal Revolution.
Discussion
0 commentsMore from Marginal Revolution
