Premium
The role of property rights in the positive theory of monopoly
Author(s) -
Hazlett Thomas W.
Publication year - 1987
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090080305
Subject(s) - inefficiency , monopoly , economics , normative , market power , economic rent , argument (complex analysis) , property rights , microeconomics , market failure , interpretation (philosophy) , property (philosophy) , law and economics , neoclassical economics , law , political science , biochemistry , chemistry , programming language , philosophy , epistemology , computer science
Abstract The traditional approach to monopoly posits a dead‐weight loss, a classic inefficiency, wherever market power is discovered. Critics such as Joseph Schumpeter argue that such dead‐weight losses are inconsequential in a dynamic setting, where long‐run trade‐offs are said to dominate them with postive sum gains, which are also claimed to flow from market power. Yet further examination reveals that even the static monopoly argument showing Pareto inefficiency is not due to a positive analysis but is an outcome determined by the normative interpretation of the monopolist's property rights. The costs which a firm possessing market power has in expanding its output are not considered as legitimate for inclusion in our analysis. (In other markets, traders are sometimes allowed to collect such rents without being labeled as inefficient—for instance, in the labor market.) The interesting questions become: Why have economists adopted this particular normative view of property rights? Is public policy thereby well served?