I’ve been a fan of Albert O. Hirschmann’s distinction between between Exit and Voice long before actually reading the book “Exit, Voice and Loyalty”. I’m a hardcore exit kind of guy, whereas Albert seeks to persuade his fellow economists to not focus on it so much. Part of his interest rests on the concept of recuperation (whereas in models of perfect competition firms simply go out of business to be replaced by new entrants), which as a Loyalty-deficient person is irrelevant to me. But the part that I have found the most odd was in his chapter “How Monopoly Can be Comforted by Competition”:
“While of undoubted benefit in the case of the exploitative, profit-maximizing monopolist, the presence of competition could do more harm than good when the main concern is to counteract the monopolist’s tendency toward flaccidity and mediocrity. For, in that case, exit-competition could just fatally weaken voice along the lines of the preceding section, without creating a serious threat to the organization’s survival. [...] [T]here are many other cases where competition does not restrain monopoly as it is supposed to, but comforts and bolsters it by unburdening it of its more troublesome customers. As a result, one can define an important and too little noticed type of monopoly-tyranny : a limited type, an oppression of the weak by the incompetent and an exploitation of the poor by the lazy which is the more durable and stifling as it is both unambitious and escapable. In the economic sphere such “lazy” monopolies [...] “welcome competition” as a release from effort and criticism[...] Those who hold power in the lazy monopoly may actually have an interest in creating some limited opportunities for exit on the part of those whose voice might be uncomfortable.”

In discussing the different theorized approaches to price-discrimination taken by exploitative vs exit-welcoming monopolies, Hirschmann acknowledges that “Instances of such topsy-turvy (from the point of view of profit maximization) are not easy to document in economic life, in part perhaps because we have not looked for them very hard and in part simply because price discrimination in general is not easily practiced.” His examples come from politics, such as a law in Columbia that paid former Presidents as many dollars abroad as they would receive in pesos if they remained in country. The models in the book concern the reaction of customers toward declining quality, but from what I can tell the threat from former Presidents is that they may try to retake office and so are best thought of as potential competitors or peers rather than mere stakeholders.

Some of his examples involve government agencies which don’t have to worry about loss of revenue. Like Warren Buffet, he worries that the option among high-income parents to put kids in private schools will mean reduced quality for public schools. But when funding follows students, exit actually does threaten the public schools and lead to improvement.

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