The role of property rights in the positive theory of monopoly

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...

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Bibliographic Details
Published in:Managerial and decision economics 1987-09, Vol.8 (3), p.201-212
Main Author: Hazlett, Thomas W.
Format: Article
Language:English
Subjects:
Capital costs
Competition
Costs
Criticism
Demand curves
Economic competition
Economic costs
Economic theory
Economists
Equilibrium
Market power
Monopolies
Monopoly
Normativity
Opportunity costs
Output
Property rights
Restrictions
Rights
Welfare economics
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Summary: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?
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.4090080305