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    3 views6 pages

    9 Additional Applications of PRs

    Uploaded by

    Yodtoshdlw Geez

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 6
    9 i Additional property rights applications In previous chapters, che property eights approach was useful in explain- lng vasou specs of such specie phenomena as gasoline pric contol and slavery and in developing a general approach to, among oer things, on-market allocation, the maximizing role of restrictions on private Property rights, and, inthe context of farm tenancy, the choice smo Yatlows contact forms. The property ight amemork can be applied te various other problems. shall consider several adinal reas o which Property rights notions can be applied: people's ably to protec them against losses to monopoly, the relationship between. property rights and theft, property ri ‘i and theft, property sights to innovations, and propery rights to PROTECTION AGAINST LOSSES TO MONOPOLY Monopolies are said to result in resource The fe, baer nown kind are Decne monopolize ete en £5” charging prices that exceed marginal costs. The second kind of ni allocation arises inthe process ofthe creation of monopolies. Would be ‘monopolist spend resources in order to attain monopoly positions and ‘uch expenditues are dsipating. Te magnitude ofthese capa costs mnparable ro that of the expected monopoly profits. Since monopolist” {gains exceed their contributions, they seem to have the right to harmn oth rople. Yer such right ate aot exercised indisrminaly, and is of interest to determine the circumstances under which such power is used Fro deen le which such power is used. fenerala property hat canbe captred musi at eatinpat nce ¢ domain. Moreover, what lis in the public domain muse have been ushed by whoever previously owned i Inthe case at han, i some: ane able capturea monoply positon, on more acura fame capture, ata resource cost, the rights to the mon s the monopoly postion self must have bem bing nthe oka RE 108 Additional property rights applications and in order for these rights to have entered the public domain, people ‘ust have relinquished their rights in the first place. Iwill delineate co tions under which people would allow this to happen for the casein which monopoly is a ‘ed by predatory pricing. In predatory pricing, an ini- ‘industry is taken over by a predator who monopolizes it by temporarily pricing the target commodity at less than it costs, thereby forcing the competitive producers cither to leave theindustry or to sell their facilities to the predator. This method illustrates well the general principle behind opportunities for capturing monopoly gai Prior to predatory action, consumers were able to purchase the target commodity from many sellers at a competitive price; this ability is threat- ened by the predator. Since property rights are defined here as individu. als’ ability to gain from the consumption and exchange of goods, it seems proper to inquire what gives consumers the ability to obtain a good atthe Competitive price. Antimonopoly laws aside, consumers surely do not hhave a legal right to the competitive price. Consumers, however, can acquire the rights (in the economic sense of the term) by the simple expedient of signing, long-term competitively priced contracts for th commodity. They might choose to take such action if they fear monopol {ation by a predator. Long-term contracts will also benefit the competi- tive sellers: Iris difficult to ruin sellers who have signed such contracts because they do not have to sell all their output at the predatory pri and these competitive sellers command a high acquisition price fro predator. As long as the extra costs of arranging long-term contracts over and above those of spot exchat less than the monopoly gain, threatened sellers and consumers will gain by establishing rights to supply and to be supplied respectively at the competitive price." When the cost of protection, whether by long-term contracts ot any other means, is less than the expected monopoly loss, the would-be monopolist stands t be predator the absence of to competitive it is to arrange long- industry will be defensive action the predatory practice is a x buyers and sellers, itis expected that the term contracts in an industry, the less subject to monopolization. ‘In summary, consumers’ and competitive. lers' ability to exchange at ceno account ofthe controversy surrounding the logic of, and the evidence for, gain more (in present terms) from the ultimate mo- fom below-cost pricing during the predatory ly, com Economic analysis of property rights ly to be ished, and a predator may then capture the right to a monopoly position, THE RELATIONSHIP BETWEEN PROPERTY RIGHTS AND THEFT The existence of theft makes the distinction between economic and legal rights clear; it also highlights the notion that economic rights are never absolute. Thieves lack legal rights over what they steal; nevertheless, they are able to consume it and to exclude others from it, to derive income from it, and to alienate it. Each of these capabilites is an attribute of ‘ownership. The lack of legal rights may reduce the value of these capabili ties, but it does not negate them. ‘The fact that thieves have rights over stolen property implies that the current owners of property that might possibly be stolen do not have full rights over “their” property. Owners cannot be certain of the future use of such properties. The rights they do have depend, in part, onthe protec: tion effort made by the state. These rights also depend on the measures owners take to protect themselves from theft; the more they spend, the ‘more secure their rights are expected to become. These efforts are not expected to deter all theft; for instance, fences around orchards ate not made to be tot leave some sin the public domain. When the probability that thieves I steal one’s apples from backyard trees is positive, then one has only partial ownership over the apples. Private protection methods are as varied as are commodities them- selves. Owners of apple orchards may employ guards to reduce theft they may place trees farther from their property boundaries than they would in the absence of theft; and they may grow less valuable apples that are less appealing to thieves. Indeed, in the absence of theft, owners might be growing entirely different crops on their land. The notion that theft is a manifestation delineation of rights can be theaters. Of the attributes theater owners relinquish to the public main, two relate to the difference in value among seats. The first relin uished attribute is the difference in value between the better and the ‘Worse seats within a price class of seats. People can capture the difference in value by arriving early and occupying the better seats. To the extent that policing is not perfect, a second attribute that is relinquished in part is the difference in value across price classes. Buyers of low-price tickets of the general case of imperfect strated further by reconsidering movie Additional property rights applications ed from can capture the difference to the extent tat they are not prevent ccupying higher-price seats. The state takes part in the cnforement effort ony in the late cas, since jumping sets consis gal nae: tion, wheres selecting a certain seat within a price lass obviously does not. The economic logic of the two types of capture, however, is the PROPERTY RIGHTS TO INNOVATIONS vations has been importance of property rights considerations to inno ily ecognzed by economists; nevertheless, some major righ issues remain unresolved. One such ise concems the rights innovators can cxpect have over tei innovations. When an inovaton is developed by a uniquely talented individual seams plausible ha such an individ awl have the elt herself ox himself and be able oobain thei to the innovations. On the other hand, if many individual are able ro evelop the same innovation at similar costs, it may appeat that none has aight toi and that heir competition forthe gain rom the innovation its economie value will be dissipated; nevertheless, inthis case too right may be well defined. the tseful measure of the net present value of an innovation is the ference between total consumers’ valuation and total innovators Costs. Bach of the potential patterns of activity leading to a particular jimovation will generate its own net present value. The highest value be generated by the innovation activity that satisfies two conditions: that it be free of duplication and that it be undertaken atthe time that yields the highese consumers’ valuation net of innovating costs. One market force that tends to bring about the realization of these conditions is competition among innovators in re lar innovations before expending ca order to attract potential customers away from co not only will innovators tend to cede to we sreton hart ning innovator wil sho be the ne wh peers the innovation activity closest to the time that maximizes its net present a only then an the id for customers dominate hat of competion en the cost of recruiting customers, whether directly oF sis rere shes in pric, the isto he ain fom the inner tion. Here, asin the case of predatory practices, the easier is advance contracting, the better are rights delineated. Trnvers who poses unique talents do not need to cede to custom 5» Demsetz (1968) ty methods used for such re ‘contracting for selling com Economic analysis.of property rights fll she potetil gains the innovations generate, Such coral he porn xis hein erate, Such innovators may ‘een for heal or hime by aera = rea 0 offering the lowest royalty pa " 8 marginal cost of serving extra consumers ne, ‘hey maybe wilig to give ground rather ha se cstomre Indio ce bare a areaining under these conditions implies that hed fer lies in the public sin the pbk omain. The potential loss from such bargaining can, » be lowered if the parties can be restrain O bargain the option of selng the ue ofthe imovatn fo ay il plibon of pike daca cea oye {ea robion ofp ion, the innovator’s tights over the ceeation wilbe arial restored. Matimizing sellers wl equate the

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