Nature of Competition: It’s the Property Right

 

A thesis: Nothing good comes for free. An antithesis: Nothing bad disappears for free. Confused? Don’t worry: Where there is a query, there is an answer. Boys, be curious!

 

The Coase Theorem. Suppose a barking puppy in the neighborhood. It surely is annoying to most of us, the innocent bystanders. The barking sound is neither music nor a benefit. It simply is a noise and a disutility (-). How to get rid of the teasing or annoying (+)? There are two big ways to solve “The Problem of Social Cost” (R. Coase, 1959, The Journal of Law and Economics).

             The one is economic (in the short run, as always): We buy a quieter environment, a benefit, in return for the cost of monetary payout to be negotiated on free wills of the two parties concerned. If you wish in this regard, you may refer to The Art of the Deal by the great negotiator.

             The other is political (in the long run, as usual): We vote for a party whose campaign promise is entitlement to a quite living environment. Now, the bargaining positions are overturned. The villain in the neighborhood has to pay us, a cost, for the benefit of keeping the puppy. We have “Stopped the Steal,” a sort of “Deal.” And that’s the way politics is.

             When in economics: Politics, the rules of the game, the infrastructure, the financial system and the like are accounted for as “exogenous.” Ceteris paribus, at any rate, the market, or the invisible hand more appropriately, can easily solve the problem of “negative externality” as sometimes called.

 

The case of YouTube. Where there is a negative (-), there is the positive (+). When we at our costs decorate the house and beautify the garden, our malevolent neighbors benefit. Unfair? Don’t even think about, “Down with neighbors!” If we do, it harms us as well. Here again, there are two ways to solve the trouble of stomachache* and to keep us investing in Home Improvement. (*According to an Eastern saying, my stomach starts to ache when I observe my cousin make a big fortune.)

             The one is economics. We make a deal with the neighbors or a third party such as a billboard advertiser so as for us to get our activities paid with some fees. Needless to say, the game must be mutually beneficial (+ and +).

             The other is political. We vote for a party whose campaign promise is entitlement to the positive externality. Now, the bargaining positions are overturned. The villain in the neighborhood has to pay us, a cost, in return for the benefit of enjoying the beauties. There are no losers, at the worst. If a villain really hates to pay a monetary sum, he is free to opt out.

 

Building the hard infrastructure. No doubt that the US economy is the greatest in the world. In the hinterland, the US airports are closer to the bottom in terms of greatness than to the top. Or, they are “near-great” for the sake of inconvenience.

             Who’s to blame? The most probable answer would be the US government in general and the Republic government in particular. Read my lips, “No new taxes.” Every cloud has its linings, notwithstanding: Privatize the infrastructure business of building and running the airports. That will bring the US airports no less shiny than the US economy. And, that's the way the free choice is. 

             At the end of the day, Ronald Coase would say, “It’s the property right, you guys.” He adds, “I did not originate the phrase ‘the Coase Theorem,’ nor its precise formulation, both of which we owe to Stigler.”

             Yes, “the property right” is a bridge over the troubled water with externalities, or "social costs" if you will.

Simon & Garfunkel - Bridge Over Troubled Water