Coase(1972) - Durable and Monopoly[2]
DURABILITY
AND
MONOPOLY
R. H. COASE Universityof ChicagoLaw School
that A SSUME a supplier owns the total stock of a completely durable good. At what price will he sell it? To take a concrete example, assume that one person owns all the land in the United States and, to simplify the analysis, that all land is of uniform quality. Assume also that the landowner is not able to work the land himself, that ownership of land yields no utility and that there are no costs involved in disposing of the land. If there were a large number of landownersand the price were competitively determined, the price would be that at which the amount demandedwas equal to the amount of land in the United States. If we imagine this fixed supply of land to be various amounts either greater or smaller, and then discover what the competitively determinedprice would be, we can trace out the demand schedule for American land. Assume that this demand schedule is DD and that from this a marginal revenue schedule, MR, has been derived. Both schedules are shown in Figure I. Let the total amount of land in existence be OQ. Then, if the price were competitively determined,the price would be OB (see Figure I). We now have to determine the price which the monopolistic landowner would charge for a unit of land in the assumed conditions. The diagramwould seem to suggest (and has, I believe, suggested to some) that such a monopolistic landownerwould charge the price OA, would sell the quantity of land OM, thus maximising his receipts, and would hold off the market the quantity of land, MQ. But suppose that he did this. MQ land and money equal to OA X OM would be in the possession of the original landowner while OM land would be owned by others. In these circumstances, why should the original landownercontinue to hold MQ off the market? The original landownercould obviously improve his position by selling more land since he could by this means acquire more money. It is true that this would
AND
MONOPOLY
R. H. COASE Universityof ChicagoLaw School
that A SSUME a supplier owns the total stock of a completely durable good. At what price will he sell it? To take a concrete example, assume that one person owns all the land in the United States and, to simplify the analysis, that all land is of uniform quality. Assume also that the landowner is not able to work the land himself, that ownership of land yields no utility and that there are no costs involved in disposing of the land. If there were a large number of landownersand the price were competitively determined, the price would be that at which the amount demandedwas equal to the amount of land in the United States. If we imagine this fixed supply of land to be various amounts either greater or smaller, and then discover what the competitively determinedprice would be, we can trace out the demand schedule for American land. Assume that this demand schedule is DD and that from this a marginal revenue schedule, MR, has been derived. Both schedules are shown in Figure I. Let the total amount of land in existence be OQ. Then, if the price were competitively determined,the price would be OB (see Figure I). We now have to determine the price which the monopolistic landowner would charge for a unit of land in the assumed conditions. The diagramwould seem to suggest (and has, I believe, suggested to some) that such a monopolistic landownerwould charge the price OA, would sell the quantity of land OM, thus maximising his receipts, and would hold off the market the quantity of land, MQ. But suppose that he did this. MQ land and money equal to OA X OM would be in the possession of the original landowner while OM land would be owned by others. In these circumstances, why should the original landownercontinue to hold MQ off the market? The original landownercould obviously improve his position by selling more land since he could by this means acquire more money. It is true that this would