Monopoly Rents Research Articles

SPECULATIVE PROFITS, INNOVATION, AND GROWTH

When technological change affects the prices of tradeable assets, innovators can obtain speculative profits by exploiting their inside information as to the occurrence of innovations. We propose a tractable model of endogenous growth that formalizes this argument, originally due to Hirshleifer (1971). We then use the model to assess two claims advanced by Hirshleifer, namely, that speculative profits can generate excessive investment in R&D when they add to monopoly rents guaranteed by patent protection, or else even in a perfectly competitive economy. The analysis confirms the first claim, but casts doubts on the second one. (JEL O30, O40)

Northern America’s Production of Technology Capital Is Transforming the World Economy

Technology capital produced by multinationals, many of which are American, is playing a major role in transforming the world economy. This form of capital is special because it can be used in multiple locations not only within a country but also in locations in other countries by their wholly owned foreign subsidiaries. The extension of aggregate economic theory to include this form of capital justifies Adam Smith that the extent of specialization is limited by the size of the market. Further, the invisible hand works, and there are no monopoly rents. The extended theory accounts for an important part of the large gains from being open to foreign direct investment (FDI). It accounts for much of the higher reported returns on U.S. FDI than on foreigners’ FDI in the U.S.

‘Becoming Rent of Profit’ and the Enclosure of Affect: Google and Facebook’s Economy of Monopoly Rent Extraction

이 연구는 구글과 페이스북으로 대표되는 최근의 플랫폼 경제가 정동의 엔클로저를 통한 독점 지대 수취 경제임을 밝힌다. 자본이 생산의 외부 요소가 되고 지대 추출에 집중함에 따라 이윤은 점점 더 지대가 된다. 지대 획득을 위한 경쟁이 매우 제한되는 상황에서 발생하는 독점 지대는 양질의 토지, 인간 활동의 중심지나 선망 장소, 지적 재산, 그리고 복제 불가능한 진품성과 특이성을 인정받은 대상 등에 토대를 둔다. 사용자 정동의 가시화와 서열화의 독창적 특허 재산인 페이지 랭크(PageRank)와 에지랭크(EdgeRank) 알고리즘은 독점 지대 형성의 원천이 되며, 각기 검색과 사회관계 활동의 세계적 중심지인 구글과 페이스북은 광고와 금융의 막대한 독점 지대 추출플랫폼이 된다. 이들 기업의 지적 재산은 본사-해외 자회사 간 사실상의 기업 내부 거래에서 독점 지대 확보의 효과적 장치로 활용되며, 그 과정에서 ‘더블 아이리시(Double Irish)’와 ‘더치 샌드위치(Dutch Sandwich)’라는 법인세 납부 회피 기법이 동원된다. 불로소득 우선 과세 원리를 근거로, ‘이윤의 지대되기’에 상응하는 법인세 특별부과세와 같은 적극적인 과세 수단을 모색할 필요가 있다.

Informality and Flexible Specialization: Apprenticeships and Knowledge Spillovers in an Indian Silk Weaving Cluster

ABSTRACTThis article draws on quantitative and qualitative data from the Banaras (Varanasi) silk weaving cluster in North India to show how informal institutions based on family and community interact with the relations of production to enable flexible specialization while reproducing or accentuating inequality. The family‐based apprenticeship system produces a supply of highly skilled workers but contributes to labour surplus by lowering the costs of entry and making exit difficult. Surplus labour ensures that productivity gains resulting from technical improvements do not accrue to weavers as higher wages. A community of artisans called thenaqsheband(designers) produces fabric patterns that are central to the industry's market. Geographical clustering results in quick diffusion of these designs and free imitation is the key to innovation. But this entails hyper‐competition, conservative changes, a culture of secrecy and quickly dissipating monopoly rents. The Banaras case enables us to understand how collective efficiencies as well as inefficiencies are created by the same institutions.

Marxist Theory of Land Rent. Original Exposure and Contemporary Reformulations

Here is presented an English version of the first two chapters of the book of Samuel Jaramillo Hacia una teoria de la renta del suelo urbano (2009) (Towards a theory of Urban Land Rent) that is only published in Spanish. This is justified because the theme developed in these two chapters have greater thematic scope than the book, since it refers to the general category of rent, which has a crucial role in the Marxist interpretation of value and price formation in capitalism, and these days it is the subject of several debates. Therefore, it may be interesting not only to those involved in real estate and urban phenomena. The two chapters have autonomy and great consistency as text. Its approach is original and challenging, as shown by the discussions awakened by the Spanish version. With this publication we want to broaden the spectrum of these theses and introduce them to those who do not speak Spanish and are interested in the topic of land property.The text has three core themes. In the first chapter a scheme of the original exposure of Marx, which is relatively sparse in his work, is presented. Initially we outline his general notions, and then, the different forms of manifestation of this category: Differential Rent Type I and Type II, Absolute Rent and Monopoly Rent. In the second chapter the main notes and objections that have been made to the original presentation, mainly in Latin American and French literature, are discussed. These objections are examined, their scope is evaluated, and is analyzed what could be the origin of the mismatches identified, when judged that they are justified. A reformulation of the original approach to absorb or overcome these difficulties is proposed. Three cores of discussion are analyzed: the Marx notion of Absolute Rent and its connection to an organic composition of capital in agriculture abnormally low; the presentation of Differential Rent Type II and the relationship with an unequal distribution of agricultural capital; the difference in nature that Marx proposes between Differential and Absolute Rent and the relationships established between the latter category with the private ownership of land. The chapter concludes with an outline of a general reformulation of the Marxist category of Rent, in order to overcome these criticisms and enhance its potential to interpret the dynamics of price formation and the distribution of value in capitalism. The latter is developed in the light of contemporary discussion of the Marxist theory of value, roughly following the perspective known as "New Approach."

Industry-Specialist Audit Fee Premium and Financial Statement Complexity

In this paper, we examine whether the industry-specialist audit fee premium and scale discounts are attributable to financial statement complexity. Financial statement complexity is measured using a combination of the number of Arabic numerals, the number of words, and the readability of 10-K financial statement footnotes. We find that specialist auditors charge a premium for clients with higher financial statement complexity and, correspondingly, offer scale economy discounts to these clients as well. Interestingly, even though non-specialist auditors charge a higher fee for clients with higher financial statement complexity, they do not offer scale economy discounts to these clients. We also show that a client’s financial statement complexity is distinct from its operational complexity. Collectively, our results suggest that the industry-specialist auditors’ premium is attributable to auditors’ investment in resources to handle client complexity, and not monopoly rent or compensation for audit risk.

Outgrowing Copyright: The Effect of Market Size on Copyright Policy

Does copyright protection offer the best means of stimulating the production of expressive works? Perhaps, at the moment, it does. If so, however, copyright protection will probably become inefficiently over-protective as the market for expressive works grows. With such growth, copyright holders will find it increasingly remunerative to focus on customers willing to pay a premium for particular expressive works. In a larger, more finely segmented market, copyright holders will find that their statutory rights generate larger monopoly rents. Yet copyright holders will suffer no corresponding increase in production or distribution costs; thanks to technological advances, we can expect those costs to continue to decline. The private benefits of copyright protection will rise. So, too, will its social costs. Holding all else equal, therefore, growth in the market for expressive works will make copyright policy inefficient. This paper explains that effect and discusses how policymakers should respond.

Patent rights, product market reforms, and innovation

In this paper, we provide empirical evidence to the effect that strong patent rights may complement competition-increasing product market reforms in fostering innovation. First, we find that the product market reform induced by the large-scale internal market reform of the European Union in 1992 enhanced, on average, innovative investments in manufacturing industries of countries with strong patent rights since the pre-sample period, but not so in industries of countries with weaker patent rights. Second, the positive response to the product market reform is more pronounced in industries where, in general, innovators tend to value patent protection higher than in other industries, except for the manufacture of electrical and optical equipment. The observed complementarity between competition and patent protection can be rationalized using a Schumpeterian growth model with step-by-step innovation. In such a model, better patent protection prolongs the period over which a firm that successfully escapes competition by innovating, actually enjoys higher monopoly rents from its technological upgrade.

Monopoly rents in contestable markets

Random choices of prices and product characteristics can be used by a contestable monopolist to deter entry and fully extract the monopoly rent. We develop this idea in a model of Bertrand price competition. In equilibrium, one firm enters the market and makes choices that are unpredictable to its competitors. This prevents price undercuts and keeps other firms out of the market. The entrant firm collects the monopoly rent despite the existence of potential competitors. This result raises an alert for regulatory practices based on the conventional wisdom that contestability is associated with low prices and profits. • We analyze a contestable market using a model with pricing and entry decisions. • Only one firm enters the market, and randomizes over multiple prices. • The other firm stays out of the market in equilibrium. • Undercutting is not profitable because of randomization. • The entrant is able to charge high prices and collect positive rent.

Monopoly Rents in Motorcycle Taxi Services in Bangkok, Thailand

This paper examines the market for motorcycle taxi services in Bangkok, Thailand, in terms of economic rent and the effects of such rent on fares. Three sources of monopoly rent in motorcycle taxi services are identified. Locational rent is attributed to the level of accessibility that is specific to the location of a motorcycle taxi stand. Such locations are limited in terms of accessibility, with few locations that can be substituted with another. The quota rent is arbitrarily created by rent-seeking activities, that is, by setting a quota on the number of operators in each location. Territorial rent is created by restricting the service area for each operator group. Depending on the behavior of the so-called influential people, the monopoly can be either enforced or eroded. A regression analysis of fare data provides evidence that supports the hypothesis of locational and territorial rents. Locational rent decreases as a motorcycle taxi stand is located farther away from a rail transit station. Motorcycle taxi groups with demarcated territories command a fare premium, which may indicate territorial rent. Some stands enjoy a degree of monopoly where there are limited substitute feeder transport modes; stands located near bus stops also command a fare premium because of accessibility. This situation implies that bus services do not compete with motorcycle taxis but provide complementary services. The additional economic rent created by new transit systems is unfairly captured by operator groups and influential people. It is suggested that a competitive market be created for motorcycle taxi services, with value-capture measures that are intended to create a more efficient and fairer feeder transport system.

The Organizing of Monopoly Rent and Cultural Processes in the Financialization Era

The Organizing of Monopoly Rent and Cultural Processes in the Financialization Era

‘Made in Italy? Who cares!’ Prada’s new economic geography

The fashion firm Prada is currently turning away from the idea of place-image (communicated through its ‘Made in Italy’ labels) as a source of monopoly rents. In this article, I concern myself with this and other recent changes in the firm’s profit making, monopoly rent generating, and wealth producing strategies and tactics – linked together by the need, on the part of Prada, to deal with the recent loosening of the once tight interweaving of place and production. How Prada, in the process, redefined what counts as ‘place’ in a relational manner is interesting; as is the fact that the firm has become even more sophisticated in its attempts to extract every drop of profit, monopoly rent, and wealth out of the capitalist system (via, for example, a strategy of corporate appropriation which involves not only a distinctive ‘anti-brand/anti-fashion/anti-commercial’ position but also a supposedly disinterested patronage of contemporary culture). All this has significant implications for the geography literature.

University Education Fees, Economic Rents and Distributive Justice

AbstractIn this article I defend the claim that subsidies for university education should be substantially reduced. The normative justification for this conclusion derives from a theory of distributive justice called the Compensation Theory of Income Justice, which is most easily understood as a normative version of the positive economic theory of compensating differentials. Relying on the distinction between incentives and economic rents, and after considering two ‘received opinions’ about why large income differentials exist in modern societies, I note that substantial portions of above‐average incomes are likely to be artificial monopoly rents, rather than incentives or natural monopoly rents. Under the Compensation Theory of Income Justice the earning of artificial monopoly rents is not justified. Since subsidisation of university education fees increases lifetime artificial rents, the theory would recommend such subsidies be substantially reduced. I defend this conclusion against objections, the most notable of which is the view that university subsidies help to improve equality of opportunity to university education. I explain how it is possible to maintain the laudable aim of providing equality of opportunity while reducing the subsidisation and, as a consequence, the lifetime artificial rents.

Industry concentration, excess returns and innovation in Australia

AbstractThis paper examines market concentration and stock returns on the Australian Securities Exchange. We find that dominant companies operating in concentrated industries in Australia are able to generate significant risk‐adjusted excess stock returns. Our results for Australian data are opposite to that found by Hou and Robinson (2006) for United States market data. Hou and Robinson reason that United States firms which operate in concentrated industries are insulated from competitive pressures, have lower levels of innovation (Arrow, 1962) and therefore experience lower profitability and stock returns. By contrast, the Australian data show a significant and positive relationship between concentration and innovation expenditure. Therefore, the excess stock returns of dominant companies in Australia are consistent with previous research linking innovation expenditure with excess stock returns. We hypothesize that the apparent contradiction of our results compared with Hou and Robinson (2006) for the United States market is resolved by an examination of the differences in size and competition in United States and Australian industries and the consequent differential ability of dominant companies in the two countries to generate monopoly rents and invest in ‘Schumpeterian’ (Schumpeter, 1942) innovation.

Monopoly by Contract: The Practice of Franchised Fee and Royalty Rate

This paper uses a theoretical framework and a by use of a franchising model will examine the practice of charging a franchise fee for the use of the trademark and will show how this practice by controlling the number of franchised operations enables franchisor to extract monopoly profit. Paper will further examine the conditions which the joint practice of franchise fee and royalty rate allows extraction of monopoly rent.

Industry Concentration and Excess Returns in Australian Equity Markets

This paper examines market concentration and stock returns on the Australian Securities Exchange. We find that dominant companies operating in concentrated industries in Australia are able to generate significant risk-adjusted excess stock returns. Our results for Australian data are opposite to that found by Hou and Robinson (2006) for United States market data. Hou and Robinson reason that U.S. firms which operate in concentrated industries are insulated from competitive pressures, have lower levels of innovation (Arrow (1962)) and therefore experience lower profitability and stock returns. By contrast, the Australian data shows a signif- icant and positive relationship between concentration and innovation expenditure. Therefore, the excess stock returns of dominant companies in Australia is consistent with previous research linking innovation expenditure with excess stock returns. We hypothesize that the apparent contradiction of our results compared with Hou and Robinson (2006) for the United States market is resolved by an examination of the differences in size and competition in U.S. and Australian industries and the con- sequent differential ability of dominant companies in the two countries to generate monopoly rents and invest in ‘Schumpeterian’ (Schumpeter (1942)) innovation.

Change in Copyright Law as a Market Intervention to Realize the Welfare Potential of Text Mining in Scientific Research

With text mining technologies advancing it becomes easier to analyse and search through an ever-growing amount of literature and to semantically integrate literary works within large corpora of literature as well as with the emerging global web of linked data. It becomes possible to use and reuse literary works in more efficient and productive ways. With these new conditions and possibilities the existing justification of copyright law is questioned and a reassessment of the law’s efficiency is required. Copyright law is justified by the economic rationale of a dynamic incentive for production of knowledge by means of temporary property rights and monopoly rents for rights holders. The objective of this paper is to examine the current welfare economics-based justification of copyright law with regard to text mining technology uses in scientific research. The paper proposes possible changes to copyright law to address the conflict between the current copyright law and the opportunity of increased productivity. The paper combines micro-economic argumentation of the “Economic analysis of law” with growth theory and seeks to illustrate a public welfare analysis for the specific constellation of literary works information goods markets, researchers and research organisations as productive users of works and research text mining services. After introducing public welfare analysis and its application to questions of market failure and information externalities the paper describes the technical possibilities, benefits and conditions of text mining as well as relevant market players. The economics of copyright law are explained and how copyright currently applies to text mining uses. The economic methodology is then applied to the legal situation and the possibilities to realize the potential of text mining in scientific research. The paper also takes copyright’s competition objective and the coupling/tying of literary works markets and text mining services into account, considers network externalities and international trade and it draws analogies to other markets with similar challenges. The findings of the paper are presented mainly for national-level public welfare analysis, but can be applied to regional level. Applied to the economic region of the European Union (EU) the conclusion of this article is: A mandatory copyright limitation exempting all research/scientific-purpose text mining uses including uses with commercial purpose from copyright, combined with the requirements that anti-circumvention law and contract law must not prevent executing such a limitation and that “legal access” defined as technical access to literary works is a sufficient condition to exercise this limitation, should be implemented in EU copyright law, because this is the best way to maximise the public welfare in the EU. ----------- NB: A public consultation on the review of the EU copyright law also addressing text mining is currently underway (extended deadline for submissions: 5 March 2014).

Toward a theory of entrepreneurial rents: A simulation of the market process

While strategy theory relies heavily on equilibrium theories of economic rents such as Ricardian and monopoly rents, we do not yet have a comprehensive theory of disequilibrium or entrepreneurial rents. We use cooperative game theory to structure computer simulations of the market process in which acts of creation and discovery disequilibrate and equilibrate the market over time. Using simulation experiments, entrepreneurial rents can be isolated from structural rents by keeping initial structural advantages constant. We impute entrepreneurial rents to underlying actions of creation and discovery under various combinations. Our results have relevant implications for entrepreneurship strategy, particularly for firm boundaries and resource allocation decisions. Copyright © 2013 John Wiley & Sons, Ltd.

When Innovation Becomes Inefficient: Reexamining Britain's Radio Industry

I examine the factors underpinning the British radio-equipment sector's particularly poor interwar productivity performance relative to the United States. Differences in socio-legal environments were crucial in allowing key players in the British industry to derive higher monopoly rents than their American counterparts. Higher British rents in turn, had the unintended outcome of stimulating innovation around restrictive patents, initiating a path-dependent process of technical change in favor of expensive multifunctional valves. These valves both raised direct production costs and prevented British firms from following the American path of broadening the radio market beyond the household's prime receiver.

Class Monopoly Rent and the Contemporary Neoliberal City

AbstractThe objective of this essay is to rejuvenate interest in Marxian rent theory in urban political economy by identifying and deepening discussion of an important aspect of the contemporary neoliberal city: class monopoly rent. First introduced by David Harvey, the concept of class monopoly rent has curiously evaded in‐depth scholarly inquiry and has never been substantively elaborated or examined. But the conditions through which class monopoly rents are extracted from property have since evolved. Yet, we know little about the relation between this standard institutional practice and contemporary urban landscapes, modes of governance, and processes of urban restructuring. The essay first reviews and identifies the concept of class monopoly rent as an important aspect of the urban process and discusses its limited scholarly engagement over the past four decades. It then discusses the implications of class monopoly rent in the context of current urban redevelopment policies and practices in Chicago, Illinois. It is suggested that a deeper examination of this concept could build a more robust and intricate understanding of the contemporary neoliberal city, particularly in the context of the post‐2007 economic recession.