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Consumer Sovereignty Research Paper

1640 Words7 Pages

Abstract
This paper attempts to indentify situations where consumer sovereignty cannot be realised. It employs the theory of the inability of a market economy to inhibit the rise of market forms with imperfect competition; to make a case against the claim that free markets can guarantee consumer sovereignty. It further highlights the inability of markets to guarantee private property rights as a cause for failure of free markets to guarantee the sovereignty of the consumer. The paper recommends a similar treatment of producers (like consumers), in order to construct a counter-intuitive model of revealed preference of the firm to understand a firm’s discretionary powers; this might help us in understanding how one can guarantee greater consumer …show more content…

As per the situation described above, this paper attempts to answer the following questions: Does a free market economy preserve consumer sovereignty?
If not, how do the inefficiencies of a free market impede the process of realisation of consumer sovereignty in the economy?
The author hypothesises that free markets have imperfections which can result in the loss of sovereignty enjoyed by consumers. Market imperfections cause market failure. In this paper, a market fails when the allocation of resources in not efficient. We use the concept of pareto efficiency i.e. an allocation is not pareto optimal or efficient, if it is possible to make an individual better off without making anybody else worse off (Varian). We analyse this using two types of market failures-
1. Monopolistic competition: To analyse supply side …show more content…

In this essay, the author stressed upon undesirable effects that result when individual take decisions keeping their self-interest in mind.
CASE STUDY
Ithaca and Geneva, two cities in the county of Tompkins, New York, USA were first connected by rail roads in the year1870; and several other railway lines were also constructed, emanating out of Ithaca. The rail building exercise continued for years to come, with major business being carried out through this network. The traffic touched its peak in the early 1900s.
However, by 1959, these services had to be discontinued completely on account of losses worth $5million dollars being incurred. The cause of this rapid descent of the once glorious service was the loss in passenger travel. People switched to other means of transportation in the form of motor vehicles and airplanes to travel to and from Ithaca when the weather was good. The inhabitants turned to the railway network only when the weather was unfavourable for road and air travel. This led to massive fall in revenues for the railway network service operators. Ultimately, the rail service had to be discontinued. The effect of this disruption was felt by the travellers when motorways and airways became

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