One of the biggest urban myths in economics is that of the everlasting light bulb. The claim is that a lightbulb, costing no more than conventional light bulbs, has been invented but which lasts forever. However, we don’t get to buy such bulbs because the bulb manufacturers bought the invention and have suppressed it, believing it would eventually put them out of business.
The story has become increasingly implausible with the rise of compact fluorescent light bulbs which last many times longer than traditional bulbs. Yet people still repeat the story which “proves” the failure of capitalism.
The problems with the story are that, firstly, it isn’t true and, secondly, it goes contrary to how markets work. As John Kay wrote in The Financial Times:
We do not need to appeal to the better nature, or environmental conscience, of light bulb manufacturers. They will not suppress the everlasting light bulb because it does not pay them to do so.
Suppose there are several competing producers of light bulbs. Our hypothetical inventor approaches one of them. The firm will indeed recognise that ultimately, when all the world’s bulbs have been replaced by the new discovery, its sales will fall. But until then, it will enjoy a hundred per cent market share. Most of the lost sales will be the lost sales of its competitors. Innovation has always been the mainstay of competition and no competitive firm would pass up such an opportunity.
Kay also explains why light bulbs have lasted for relatively short periods of time and why compact fluorescent bulbs are changing that:
Tags: John KayIt was always possible to manufacture light bulbs that would last for many years. But the higher cost and lower efficiency of these bulbs meant that these were not in fact an attractive proposition for consumers. Only recently did new technology enable long life, low energy bulbs to be made at costs reasonably comparable to those of conventional bulbs.