Monopoly Rents Research Articles

Risk management of the agricultural income: the inter‐Rhône reserve

PurposeAgricultural risks will tend to increase in the future, but risk management instruments and techniques at the disposal of wine companies are relatively limited. This paper aims to present an original risk protection mechanism implemented by the federation of Côte du Rhône (Inter‐Rhône) wine producers to build up a wine stock, or “reserve”, so as to protect their incomes against fluctuation in prices and production.Design/methodology/approachUsing the VaR (value‐at‐risk) methodology, the stock level that will protect producers against a fall in their incomes is determined. More specifically, the probability that a given producer's current income falls lower than a target minimum income must be inferior or equal to a given (small) wine stock level. An agricultural income depends on price and production, so the reserve amount is expressed according to price and production quantity risk (measured by standard deviation), and the correlation between the two. The wine stock reserve is compared with a reserve invested in financial assets.FindingsA static comparative analysis is made using simulations of the two types of reserves (wine stock and financial assets) according to the various explanatory variables. Empirical study makes it possible to calculate reserve amounts for each category of wine managed by Inter‐Rhône. The study reveals a strong disparity in the amount of reserves of each wine.Originality/valueThe reserve system is considered by some to give to the producer federation the power to control supply below the equilibrium level in order to receive monopoly rents. To avoid this occurring the constitution of a mutual fund is recommended. This solution allows producers to profit from diversification gains and greater managerial flexibility.

Intergenerational Transfers, Lifetime Welfare and Resource Preservation

This paper analyzes overlapping-generations models where natural capital is owned by selfish agents. Transfers in favor of young agents reduce the rate of depletion and increase output growth. It is shown that intergenerational transfers may be preferred to laissez-faire by an indefinite sequence of generations: if the resource share in production is sufficiently high, the welfare gain induced by preservation compensates for the loss due to taxation. This conclusion is reinforced when other assets are available, e.g. man-made capital, claims on monopoly rents, and R&D investment. Transfers raise the welfare of all generations, except that of the first resource owner: if resource endowments are taxed at time zero, all successive generations support resource-saving policies for purely selfish reasons.

Urban Water Policy: In Need of Economics

he thesis of this article is that Australian urban water supply and pricing policies are not well grounded in rational economic thinking. It questions the policy consensus that water is necessarily so scarce in Australia as to require the sorts of penal charges, water restrictions and use regulations which are being imposed or being considered for imposition upon urban users. It also questions the policy consensus on vetoing new dams for urban water supply, a consensus from which Queensland is partly defecting. (Rural water use is a separate story, though it seems that policy failures there have been used to justify the punishment of urban water users.) This article does not question the function of the price system nor does it suggest capital for water infrastructure is a free good, but it does argue that the current ‘water policy consensus’ which involves deliberate non-augmentation of supply, discriminatory pricing, rationing and the creation and exploitation of monopoly rents by treasuries is hardly an economic optimum. The thesis is illustrated by pointing out apparent logical problems with Australian Capital Territory (ACT) water supply and pricing policies. The ACT’s policies are more or less paralleled by other jurisdictions and its urban water prices have been driven higher than most. It is therefore a representative example of an increasingly dominant policy consensus. At the outset, one readily acknowledges that when a resource is genuinely scarce, rising prices do serve to ration demand. However, although Australia is a dry continent, it has a relatively small population and a wide variety of regional climates. Water is not necessarily scarce in North Queensland, for example, and a policy which forbids Cairns from building a second dam when six times the volume of the existing dam flows over its spillway in the wet season may be quite irrational. Few Australians live in areas with very low rainfall.

The Case for Abolishing the Higher Education State monopoly in Greece

In Greece, the provision of tertiary education is permitted, by the constitution, only to 'public' institutions where faculty and administrators are civil servants and public officials respectively. We present a model that describes the situation observed in Greece, where the community of tertiary education providers decides in the name of the whole society on the extent to which the provision of these services is a (state) monopoly. We see that in the context of our model the society has to override the decision of the educational community regarding the provision of these services if it desires to see the community of educational services providers to allocate more time towards their profession and less time towards rent protection and/or extraction. Our model predicts that once reform, that is the removal of the state monopoly, is introduced the educational community that now allocates time to protect the monopoly rents and oppose reform will allocate more effort towards educational related activities and less effort towards rent protection while at the same time it will accept a new equilibrium in which education related activities are rewarded more generously. Descriptive statistics concerning higher education performance in Greece confirm that today tertiary education in Greece resembles to the textbook case of a monopoly.

Patents versus ex post rewards: A new look

Economic studies that aim at comparing the patent system social efficiency versus an ex post reward system rest on an outdated view of patents. They assume that firms use the patent system only in order to be granted a short-term commercial monopoly rent. This assumption is convenient because it allows straightforward comparisons between patents and rewards but it is not confirmed by empirical studies, which stress that in many industries most firms use patents as strategic devices to trade technologies and to ease R&D collaborations. This change leads to rethinking the framework of the patent–reward debate.

Rent seeking and the value of time

This paper focuses on the question of how rivals’ rent-seeking expenditures and investment expenditures are affected by the temporal dimension of those cash flows as well as the timing of the cash flow of monopoly rents. The paper applies methods from statistical reliability theory to derive five propositions establishing the conditions that must be satisfied if the rivals apportion their rent seeking and investment expenditures to maximize their certainty equivalents of the monopoly rent. The propositions explicate the responses of the rivals to changes in economic parameters characterizing the rent-seeking contest such as a change in the duration of the monopoly rent cash flow or a change in the number of rivals.

Output and price effects of enhancing services sector competition in a large open economy

This paper studies the output and price effects of exogenous changes in the degree of competition. It is motivated by initiatives to enhance competition in services in the European Union. The paper shows that a higher degree of competition in the nontradable goods sector may have adverse implications for international price competitiveness. It highlights four channels through which enhanced competition in the non-tradable goods sector affects output and the general price level in a large, open economy (lower monopoly rents, higher wages, lower import prices, international wealth transfer) and assesses their relative importance. The conclusions suggest that the Single Market enhances output and reduces the general price level.

Exclusive territories and performance dimensions in industrial distribution channels

There are two main approaches to studying vertical restraints in distribution channels: the anti-competitive and the efficiency approach. This article sets out to analyze the effects of exclusive territories agreements on performance levels in the distribution channel by proposing a number of hypotheses based upon these two approaches and by testing them with paired data from a sample of 116 manufacturer–dealer relationships from the Spanish industrial market. Results show that manufacturers and dealers perceive higher role performance levels in their partners in relationships characterized by exclusive territories. In a similar way, both manufacturers and dealers obtain higher levels of business performance in exclusive territories relationships, but we found no support for a direct effect of this vertical restraint on business performance. Instead, this effect is completely mediated by the higher levels of role performance associated with the exclusive territories agreement. Thus, empirical findings suggest that the economic outcomes achieved in ET relationships are due not to the presence of monopoly rents, but rather to the better role performance of the participants.

The International Treatment of Biological Material as Intellectual Property

AbstractThe Agreement on Trade Related Aspects of Intellectual Property (TRIPS) of the World Trade Organization was negotiated prior to the commercialization of any plant-based biotechnology. While the negotiators of the TRIPS anticipated biotechnology a number of important international issues in the treatment of biological material as intellectual property have arisen in the wake of commercialization. This paper analyses the international treatment of biotechnology and other plant genetic resources in the light of this experience. In particular, the problem of monopoly rents, the differential treatment of scientific discovery versus traditional knowledge in international intellectual property law and differences in scientific capacity are examined. The paper ends with some suggestions for the reform of the international regime for the protection of intellectual property.

Banks, Markets, and Efficiency

Following Diamond (1997) and Fecht (2004) we use a model in which financial market access of households restrains the efficiency of the liquidity insurance that banks' deposit contracts provide to households that are subject to idiosyncratic liquidity shocks. But in contrast to these approaches we assume spacial monopolistic competition among banks. Since monopoly rents are assumed to bring about inefficiencies, improved financial market access that limits monopoly rents also entails a positive effect. But this beneficial effect is only relevant if competition among banks does not sufficiently restrain monopoly rents already. Thus our results suggest that in the bank-dominated financial system of Germany, in which banks intensely compete for households' deposits, improved financial market access might reduce welfare because it only reduces risk sharing. In contrast, in the banking system of the U.S., with less competition for households' deposits, a high level of households' financial market participation might be beneficial.

HUMAN RIGHTS AND GLOBAL HEALTH: A RESEARCH PROGRAM

Abstract:One‐third of all human lives end in early death from poverty‐related causes. Most of these premature deaths are avoidable through global institutional reforms that would eradicate extreme poverty. Many are also avoidable through global health‐system reform that would make medical knowledge freely available as a global public good. The rules should be redesigned so that the development of any new drug is rewarded in proportion to its impact on the global disease burden (not through monopoly rents). This reform would bring drug prices down worldwide close to their marginal cost of production and would powerfully stimulate pharmaceutical research into currently neglected diseases concentrated among the poor. Its feasibility shows that the existing medical‐patent regime (trade‐related aspects of intellectual property rights—TRIPS—as supplemented by bilateral agreements) is severely unjust—and its imposition a human‐rights violation on account of the avoidable mortality and morbidity it foreseeably produces.

Potential Monopoly Rents from International Wildlife Tourism: An Example from Uganda's Gorilla Tourism

The economic benefits many African countries derive from international wildlife tourism are very few, especially when viewed from existing potentials in terms of resources and uniqueness. African wildlife tourism has natural barriers to entry and thus is basically a monopolistic market. However, the countries have done virtually nothing to take advantage of this situation. Rather than focusing on cost recovery or revenue maximisation, the governments should therefore aim at maximising profits from international tourism. Uganda is the case study of this paper in this regard. Data collected from a travel cost survey indicates that in 1997, even under uniform pricing, Ugandan's profit from gorilla tracking in the Bwindi Impenetrable National Park alone could have been increased by between USD 30,000 and USD 220,000 (depending on assumptions about social costs). Besides, unlike most government revenue sources, monopoly prices on international tourism do not impose deadweight losses on the domestic economy.

QUANTITATIVE RESTRICTIONS ON THE FLOW OF NARCOTICS: SUPPLY AND DEMAND RESTRAINTS IN A NORTH–SOUTH MACRO‐MODEL

This paper constructs a macroeconomic model of North–South interaction where the flow of narcotics from the South to the North is restricted. The economic effects are akin to quantitative restrictions in trade policy. Two alternative policy scenarios will be considered. One involves reducing the supply of drugs at the source, accompanied by aid. Supply‐side restrictions have negative aggregate supply‐side effects in the producing region, because of the monopoly rents generated from that type of control. This makes them a second‐best policy, particularly if the accompanying aid is not used for poverty alleviation and fails to expand domestic aggregate demand. Alternatively, demand side restrictions will be found to be superior.

Baseball's Antitrust Exemption: Why It Still Matters

Major League Baseball has enjoyed a presumed, blanket exemption from the nation's antitrust laws since 1922. The other team sports have no such protection, and baseball's reserve clause has been in history's dustbin since 1976. (1) Does the exemption still matter? Yes, and here are some reasons why. MLB has not faced a rival league since 1915. Its exemption has insulated the industry from legal challenges to its restrictive practices. When baseball abuses its power, the injured parties are not entitled to call for judicial review along with discovery of evidence. Over time this circumstance has led to a management culture of laxity, inefficiency, and arrogance. Evidence of this culture still persists. For instance, home field advantage in the 2003 World Series was decided for the first time by the winner of the All-Star Game. Why? Not because it made any logical or competitive sense, but because baseball was desperately grasping for a way to boost its flagging television ratings for the midseason classic. The gambit, by the way, seems to have failed: 2003 All-Star Game ratings and share were identical to the record low ratings in 2002. Worse still, the ratings among the crucial eighteen- to thirty-four-year-old male demographic were down 9.7 percent relative to 2002. The pattern here is well established. Grab for the proximate dollar and never mind about the long-term consequences. Or consider the revealing message in Michael Lewis's new book Moneyball: The Art of Winning an Unfair Game. For decades baseball teams' front offices were run by good old boys who followed a dubious lore of player evaluation as if it were catechism. The enlightening statistical analyses of the game by innovators like Bill James went ignored until Sandy Alderson in Oakland decided that his team could benefit from James's insights in the mid-1990s. And benefit they did, creating a first-class competitive team on a shoestring budget.(2) Or take the absence of a Major League team in our nation's capital, the eighth largest media market. The NFL, NBA, and NHL, all without antitrust exemptions, have teams in Washington DC, but not baseball. Over the years MLB has offered several arguments in defense of its league's presumed antitrust exemption. First, until 1977 MLB maintained that the player reserve system was essential to preserve competitive balance in baseball and that the exemption permitted the industry to maintain this labor market restriction. Yet the reserve system simply affected whether monopoly rents went to the owners or to the players. It did not equalize the distribution of player talent. In fact, with free agency it became more expensive to hold together a winning team and easier for a weak team to turn around its fortunes. Thus, after the reserve system was eliminated, competitive balance in baseball actually improved. So much for defense number one. COMMISSIONER'S POWER Second, MLB asserted that it did not need to be regulated administratively or subjected to competitive pressure because, through its independent commissioner, it self-regulated effectively. The commissioner's power to act in the game's best interests, the argument went, was the only stewardship needed to prevent exploitation of the consumer or dynamic inefficiency. To be sure, commissioners had a small degree of wiggle room until the dismissal of Commissioner Fay Vincent in 1992. But it was only very modest wiggle room. The few commissioners who tried to exercise true independence were usually dispensed with in short order by unappreciative owners. Since 1992, however, the commissioner has been an owner. Any claim that Mr. Selig behaves as anything other than a CEO strains credulity. NO PROFIT MEANS NO MONOPOLY Third, the owners have claimed that MLB is not really a monopoly and that the absence of profitability proves it. Rather, this argument goes, baseball is one of many games in the sports industry and one of an even greater number of companies in the entertainment industry. …

The Formation of the East India Company as a Deal between Entrepreneurs and Outside Investors

The formation of chartered corporations is usually viewed as an agreement between their promoters and the State with payoffs in the form of monopoly rents, property rights, services or taxation. The present article analyzes the formation of the East India Company as a deal between two groups of investors: Entrepreneurs with established interests in Asian trade who needed equity capital, and outside investors - European merchants, landowners and artisans. Insiders offered the outsiders voice, information and a unique exit option. This privately ordered institutional innovation allowed cooperation between investors in the absence of a share market in 1600 England.

Edith Penrose and the resource-based view of (international) business strategy

In recent years, there has been substantial interest in the work of Edith Penrose, particularly her contribution to the resource-based theory of (international) business strategy. The aim of this paper is to critically assess some recent literature, focusing, for illustrative purposes, on an article by Rugman and Verbeke (R–V). R–V’s article claims that Penrose’s focus was on value creation, not rents in equilibrium (the focus of the resource-based view). It also observes that the work by Penrose on the multinational enterprise did focus on value appropriation and rents, but this work was somewhat at odds with Penrose’s work on the domestic firm. We claim that while Penrose’s work was concerned primarily with value creation, she dealt explicitly with monopoly rents too. Her work on the multinational firm was in line with her analysis of the domestic firm. Moreover, her work has important prescriptive lessons for management practice.

Pricing of electricity distribution: an empirical efficiency study in Finland, Norway and Sweden

The Nordic countries have long experience of a liberalized electricity sector. The monopoly operations—namely, distribution and transmission of electric energy—are regulated in an attempt to prevent monopoly rents and to induce improvements in efficiency. This paper presents the main results of an empirical study on network pricing in Finland, Norway and Sweden, with special focus on efficiency in the performance of the utilities. The results of this efficiency study indicate that there is in theory great potential for cost saving in Nordic electricity distribution.

Deregulation and Monopoly Profits in New Zealand's Gas and Electricity Sectors

The paper reviews New Zealand's experience with light-handed regulation of gas and electricity lines networks. The regulations included provisions for quite detailed information disclosure, and analysis of the resulting data shows clear evidence of very high-realised rates of return, compared with a competitive benchmark cost of capital. Disclosure of these large monopoly rents did not, however, trigger any official response to protect consumers from monopoly pricing, nor any curb on companies' use of an officially-sanctioned set of accounting practices which, although ostensibly based on current-cost principles, failed to account for the accrual of asset revaluation gains when calculating warranted revenues. Both industries were left effectively unregulated for most of the 1990s, and recent policy adjustments have left untouched the consequences of their virtually unchecked exercise of market power in the decade following corportization and deregulation.

Pricing of electricity distribution: an empirical efficiency study in Finland, Norway and Sweden*1

The Nordic countries have long experience of a liberalized electricity sector. The monopoly operations—namely, distribution and transmission of electric energy—are regulated in an attempt to prevent monopoly rents and to induce improvements in efficiency. This paper presents the main results of an empirical study on network pricing in Finland, Norway and Sweden, with special focus on efficiency in the performance of the utilities. The results of this efficiency study indicate that there is in theory great potential for cost saving in Nordic electricity distribution.

The Geographic Scope of Retail Deposit Markets

In analyzing the competitive effects of proposed bank mergers and acquisitions, United States antitrust authorities rely on two important assumptions: (1) that markets for at least some types of banking products are local in scope, and (2) that market concentration measures can serve as effective proxies for banks' abilities to extract monopoly rents. This paper uses balance sheet data from most banks operating in the United States in 1988, 1992, 1996, and 1999 to test these assumptions.