Steven Landsburg: Big Price Fluctuations are Evidence of Competition

A monopolist always has price-sensitive customers—because if they’re not price-sensitive, he’ll keep raising his prices until they are. Therefore, even when market conditions change, a monopolist can rarely afford to raise prices very much. Big price fluctuations are evidence of competition.

– Steven E. Landsburg, More Sex is Safer Sex, p. 137. This is a fun piece of economics. Draw the supply and demand pictures and monopoly optimization pictures to see the logic here. There is wiggle room for this claim to not always be true, but Steven’s generalization has a lot of merit.