The Limits of Benefits the Rights of Property

The Limits of Benefits: You might believe that since monopolistically competitive companies can use their unique characteristics to increase the prices, that they have high margins of gains. After all, in real competition in which all the companies sale the same product and do not have a way of differentiating themselves from their competitors, the prices go down so low that all the companies end up gaining economic benefit from zero. If the monopolistically competitive companies can increase their prices above those of their competitors, it would seem obvious they have their benefits guaranteed.

However, unfortunately for them, this is certainly not so. Just as the economist Cambridge Joan Robinson pointed out during the thirties, the monopolistically competitive companies still have to face competition. And even more so if they have good earnings they face the perspective of attracting new companies in the industry. Then when the new companies start to produce, these start to attract clients of the already established ones and end up with their good earnings. In fact, the entry of new companies will continue until the benefits have reduced to zero.

The Rights of Property: We have already learned about Adam Smith’s invisible hand – the idea that even though the individuals pursue their own interests, common good is achieved, as long as they are allowed to assign the resources. However, Adam Smith understood that this result could only be achieved if the rights of property of society were established correctly, before people start to exchange goods and services in the markets.

The essence of the problems is that if the rights of property are not adequately established, one person will not be completely aware of the way their actions affect other people. To give you an example of this; take two lands, one of these lands is private property while the other one is not owned land and does not belong to anyone and everyone is able to use it as they please. If the people want to throw trash on the land that is owned by someone the people will need to pay the owner for the right of doing so, (in such as case where the owner is using his land as a dump). In the other case however, people can throw their trash on the land that is not owned without paying because nobody has a right of avoiding this.

Obviously, the difference in the rights of property of both lands causes people to throw much more trash in the land that is not owned because it is cheaper for them. The problem is that even though it is not as expensive, the decision of throwing trash on land that is not owned imposes other costs on other people. It is possible that this land was once a nice playground and now it has turned into a stinky dump. The deficient rights of property end up having bad results.

Here we are going to be talking about the positive and negative externalities, which are situations in which the behavior of a person ends up being beneficial or costing other people, but in which the rights of property are not well defined that these costs and benefits do not take each other into account adequately. There are also other cases in which a lot of these cases lead to extinction of endangered species due to a lack of rights of property.

Beginner Money Investing Regulating Oligopolies Applying Antimonopoly Laws Monopolistic Competition The Limits of Benefits & the Rights of Property Externalities - Costs and Benefits Caused By Our Actions