The Simple Franchise Bidding Scheme

Demsetz contends that even though efficiency considerations may dictate that there be only one supplier in a natural monopoly industry, the unregulated market price need display no elements of monopoly. Conventional analysis is flawed by a failure to distinguish between the number of ex ante bidders and the condition of ex post supply. Even

Franchise Bidding Elaborated

It will be useful to examine franchise contracts of three types: once-for-all contracts, which appear to be the type of contract envisaged by Stigler; incomplete, long-term contracts, which are favored by Demsetz; and recurrent short-term contracts, which Posner endorses. 1. Once-For-All Contracts  Stigler’s views on franchise bidding are limited mainly to an endorsement of

Franchise Bidding for Natural Monopoly: A Case Study

The requisite level of detail for assessing the efficacy of an organizational mode will vary with the circumstances. There plainly are regulatory matters for which detail of the kind developed above is unnecessary. The level of detail at whioh much of the regulatory dialog is conducted is often too ag- however, to ascertain “how

Franchise Bidding for Natural Monopoly: Concluding Remarks

Whatever their origins, the cost of good intentions needs to be evaluated. The comparative institutional approach to the study of economic organization is precisely designed to do that. This chapter examines the efficacy of franchise bidding schemes as an alternative to regulation in the provision of public utility services in circumstances where there are

The Oakland CATV Franchise Bidding Experience

Although the case study reported below cannot claim to be representative, it does reveal that many of the franchise concerns disscused in Chapter 13 are not purely imaginary. The study both indicates the importance of evaluating proposals to scrap regulation in favor of market alternatives in more micro-analytic terms and discloses that, in practice,

Antitrust Enforcement: Merger Policy

Changes in public policy toward vertical and conglomerate mergers have been described in Chapters 4 and 11. They do not require repeating here. The proposition that public policy toward mergers had undergone significant transformation is difficult to appreciate, however, without a statement of specifics. I attempt to give some background here. 1. The 1960s 

Antitrust Enforcement: Nonstandard Contracting

The inhospitality tradition to which 1 referred earlier9 held that nonstandard modes of contracting were presumptively anticompetitive. The argument, moreover, was very sweeping. No effort was made to delimit applications to a subset of activity where the anticompetitive concerns were thought to be especially severe. Rather, customer, territorial, and related contract restraints were held

Antitrust Enforcement: Strategic Behavior

The study of strategic behavior—by which 1 mean efforts by established firms to take up advance positions in relation to actual or potential rivals and/or to respond punitively to new rivalry—is enormously complex. The early entry barrier models emphasized ex ante positioning. More recent work on predatory pricing has emphasized ex post responses. Objections

Antitrust Enforcement: Unresolved Dilemmas

The study of strategic behavior has made remarkable progress during the past five years. A number of troublesome problems nevertheless remain. These include (1) whether efforts to curb predation should focus primarily on price and output or if other aspects of rivalry should be included; (2) inasmuch as rules governing predation set up incentives

Antitrust Enforcement: Concluding Remarks

The 1960s was a decade when nonstandard modes of economic organization were presumed to have monopoly purpose and effect. Antitrust was preoccupied with measures of concentration and entry barriers. Such a narrow formulation facilitated easy enforcement, but sometimes at the expense of an informed welfare assessment of the issues. Three factors contributed to this

Conclusions of Transaction Cost Economics

John R. Hicks advises that since economics is concerned with a changing world, “a theory which illumines the right things now may illumine the wrong things another time. [Accordingly], there is … no economic theory which will do for us everything we want all the time. . . . We may [someday] reject our

Transaction Cost in Economics

Transaction cost economics acknowledges that technology and ownership of assets arc both important, but it maintains that neither is determinative of economic organization, nor are both together. Rather, the study of economic organization has to go beyond technology and ownership to include an exam- ination of incentives and governance. Transaction cost economics maintains that

Transaction Cost in Law

Ronald Gilson advances the novel and controversial view that business lawyers should be thought of as “transaction cost engineers” (1984). Such an approach ascribes value enhancement to the job of transaction design, which is a theme advanced repeatedly in this book.15 It emphasizes and gives content to the affirmative side of lawyering. Transaction cost

Transaction Cost in Organization

Unlike economists, sociologists have long been concerned with the puzzle, “Why are there so many kinds of organization?” (Hannan and Freeman, 1977, p. 936). Although numerous interesting explanations for organizational variety have resulted, the explanation favored here—namely, organizational variety arises in the service of transaction cost economizing—was not natural to and is still resisted

Transaction Cost Economics: Postscript

Schumpeter posed the question “Can capitalism survive” to which he ventured the opinion, “No. I do not think that it can” (1942, p. 61). Lack of intellectual support for—indeed, prevailing intellectual skepticism regarding—the merits of capitalist modes of organization was among the factors that led to that negative assessment (Schumpeter, 1942, chap. 13). Forty

Toward a new institutional economics: Some Antecedents

The materials in this section are in no sense a survey. They merely indi- cate an early concern among some members of the profession of the types of institutional issues that I deal with in this treatise. With the exception of the market failure literature, which is examined briefly in Section 1.4, there is

A Preliminary Statement of the Organizational Failures Framework

Although I shall defer a more complete statement of the organizational failures framework until Chapter 2 (indeed, some of the elements that appear in it are not even identified here), a sketch of the basic approach, set out early, will not only provide an overview of what will follow but also permit some immediate

Toward a new institutional economics: Three Illustrations

Whether the proposed approach leads to a better understanding of or to implications different from those found in received microtheory can best be established by addressing it to particular economic phenomena. Three are examined here: price discrimination, the insurance problem, and Stigler’s life cycle treatment of vertical integration. Although the first of these does

The organizational failures framework: Bounded Rationality and Uncertainty/Complexity

1. General Bounded rationality refers to human behavior that is “intendedly rational, but only limitedly so” (Simon, 1961, p. xxiv). Although it is widely appreciated that human decision makers are not lightning calculators, and occasionally this fact is explictly taken into account in abstract models of market processes ( Radner. 1968), the implications for

The organizational failures framework: Opportunism and Small Numbers

1. General Opportunism extends the conventional assumption that economic agents are guided by considerations of self-interest to make allowance for st™ eg,c behavior. This involves self-interest seeking with guile and has profound implications for choosing  between alternative contractual relationships. Such strategic interaction has been discussed in other contexts by other writers; Schelling’s (1960) and Coffman’s