Consumer sovereignty

Consumer sovereignty is the economic concept that the consumer has some controlling power over goods that are produced, and that the consumer is the best judge of their own welfare.

Consumer sovereignty in production is the controlling power of consumers, versus the holders of scarce resources, in what final products should be produced from these resources. It is sometimes used as a hypothesis that the production of goods and services is determined by the consumers' demand (rather than, say, by capital owners or producers).

Consumer sovereignty in welfare is the idea that the consumer is the best judge of their own welfare (rather than, say, politicians). It is used to claim that, for example, the government should help the poor by giving them monetary transfers, rather than by giving them products that are deemed "essential" by the politicians.

Consumer sovereignty in production

Consumer sovereignty was first defined by William Harold Hutt as follows:The consumer is sovereign when, in his role of citizen, he has not delegated to political institutions for authoritarian use the power which he can exercise socially through his power to demand (or refrain from demanding).The double use of the word "power" in this definition makes it clear that the power of the consumers was the most important topic in the whole concept. Hutt later reformulated the definition in a similar sense:...the controlling power exercised by free individuals, in choosing between ends, over the custodians of the community's resources, when the resources by which those ends can be served are scarce.

Examples

Sometimes a business will fail because it can't provide the products necessary to make consumers happy:

Blockbuster ultimately failed because consumers started to adapt to more convenient alternatives like Netflix, Redbox, and video on demand. Blockbuster continued renting out DVDs and VHS tapes at traditional stores and was slow to modernize, causing Blockbuster to lose money and eventually go bankrupt.

Dell, once the biggest computer manufacturer, faltered as mobile devices began to displace PCs, cheap Asian machines cut into profitability, and big customers began to demand end-to-end service in addition to the hardware.