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This chapter addresses three complicated issues concerning commons management and infrastructure pricing. First, it examines how commons management interacts with different forms of price discrimination. Second, it considers the relationship between commons management and price regulation. Although nondiscrimination rules and price regulation may complement each other, particularly in the context of regulated monopolies, one does not necessitate the other. Finally, it focuses on infrastructure pricing and subsidies aimed at reducing prices to marginal cost.

Some scholars and policy makers claim that an expansive, proprietary copyright not only imposes merely trivial speech burdens but, indeed, represents the best means for resolving the tension between copyright and free speech. As Paul Goldstein forcefully puts it: to extend copyright “into every corner where consumers derive value from literary and artistic works” is the “best prescription for connecting authors to their audiences.”A broad, proprietary copyright, Goldstein argues, would thus “promote political as well as cultural diversity, ensuring a plenitude of voices, all with the chance to be heard.” This chapter takes on that “propertarian” counter‐argument. It demonstrates that broad copyrights do not, in fact, facilitate expressive diversity. It does so on the basis of copyright economics and by distinguishing between product differentiation and expressive diversity.

This chapter reviews classical topics in economics. It is intended mostly for readers who have not studied economics before, but it is written in a style that will perhaps offer something new for students of economics. The topics covered include demand and supply curves, the Edgeworth box, classical and discriminating monopolies, perfect competition, and Walrasian equilibrium.

Price discrimination is an important instrument of competition: firms in industries that might otherwise have excess profits based on entry barriers and recognized mutual dependence can be destabilized by the ability of participants to nibble at each other’s markets through selective price competition. Nevertheless, firms may sometimes employ targeted discrimination to hinder the competitive progress of rivals who would benefit if they could not be singled out for attack through such devices as fidelity rebates. The U.S. should repeal the Robinson-Patman Act – and not merely treat primary and secondary line price discrimination effects differently –and the EU should abandon its comprehensive prejudice against price discrimination reflected in the language and application of Article 102 TFEU. Both jurisdictions should critically explore claims that a seller’s discriminatory prices, which may adversely affect particular rivals of that seller, are threatening competition in the market.

This chapter examines some of the theories and doctrine that are used in both antitrust and IP law to characterize tying and quasi-tying practices in markets that are subject to substantial product complementarity or networking. The most important issues concern price discrimination, foreclosure and leverage, countervailing power and bilateral monopoly, and double markups.

The type of the competitive market in which firms operate will depend on the implicit rules that govern the behaviour of the companies. When there are long‐term relational contracts, there is the opportunity for prices to reflect the value of products to the customers as well as the cost of the product. Accordingly, the less stable the competitive environment, the greater the degree to which prices will be determined by cost rather than value.

This chapter considers a variety of issues in industrial policy by modelling the trade‐off between informational rents and efficiency distortions. It is shown that political imperfections affect regulatory rules and that the ownership structure of firms matters. Price distortions and the rationale behind prohibiting price discrimination are analysed and the models are extended to include the possibility of lump sum transfers by the government.

This chapter introduces a model of coarse reasoning and applies it to several market models. First, the model is employed to capture limited ability to perceive complex price patterns. It is shown that a monopolist may benefit from creating complex temporal price patterns as a way to discriminate between consumers with diverse pattern-recognition abilities. Second, the model is applied to a market with adverse selection, and its implications for market failure are explored.

Theories of choice, and their legal consequences, dramatically differ based on whether they are premised on rational or boundedly rational actors. This chapter describes the interactions between, and regulatory implications of, three types of uncertainties that the selection of an adequate theory of choice requires. First, it suggests that Knightian uncertainty concerning the distribution of degrees of rationality between regulatees obtains in many regulatory areas. More recently, this has been described as a ‘knowledge problem’ of behavioural law and economics. This chapter argues that the best regulatory response to the knowledge problem is to frame regulation as a problem of decision making under uncertainty. Second, with the rise of machine learning, it is arguably becoming ever more possible to estimate the level of bias, or even entire rationality quotients, of individual regulatees. This opens the potential for, but also the pitfalls of, personalised law. Third, even Big Data analytics generally only offers a snapshot of a distribution of rationality at one moment in time. Recent economic analyses have suggested behavioural heterogeneity can evolve over time in unpredicted ways that may lead to unforeseen consequences, leading to economic complexity. This calls for a greater role of standards, as opposed to rules, in regulating environments with dynamic behavioural heterogeneity. The chapter focuses on the normative implications of different types of uncertainty. In the end, theories of choice can aid more transparent normative trade-offs but they cannot replace the value judgments, and normative discourses, that balance the involved interests.

This chapter considers key elements added to the theoretical landscape of competitive markets brought by the Sherman Act and the subsequent theories that emerged after the passing of the Act. These features are: oligopoly, product differentiation, monopolistic competition, price discrimination, and barriers to entry. It examines the accounts of economists Joan Robinson, Edward Chamberlin, and John Maurice Clark, each of whom offered explanations of market competition as far less than perfect. The chapter also looks into the different policy responses to their respective accounts.

This chapter examines the license agreements imposed by IP rights holders that redefine transactions and strip consumers of ownership even after an apparent sale. Despite their importance, consumers seldom read these license agreements because of their length and complexity. In response, IP rights holders produce highly uniform license terms that impose restrictions on the rights acquired by consumers. There are two approaches of interpreting license agreements: one treating them as contracts that require the mutual consent to be effective, while the other construing license agreements as expression of permission that does not require agreement to be effective. Many courts rely on license agreements to determine whether consumers enjoy ownership over the things they purchase. The better approach, however, should be to look at the economic reality of a transaction.

Chapter 8 examines the so-called sharing economy (better termed the slicing economy) in the marketplace for products and services. It considers the prospects and limits of swapping full-strength ownership for on-demand access. The chapter also shows how indivisibilities crop up in product bundling, sizing, pricing, and standardization, with implications for consumer choice. Although “long tail” dynamics have increased product variety in many domains, high fixed costs for introducing a new offering can push toward standardization and leave those with less popular tastes out in the cold. Price discrimination and product bundling can alter the mix of goods offered and consumed. Bundling can also have interesting cognitive effects, including attenuation of the sunk-cost fallacy. Because the traditional ownership model bundles possession over time, such effects are important to study as we move to models based on thinner slices of access. Finally, the lumpiness of money itself can impact product markets and the stickiness of prices, as Coca-Cola's maintenance of the five-cent Coke for over seven decades vividly illustrates.

This chapter extends the analysis of Chapter 2 to situations in which consumers can have partial degrees of naivety. The concepts of magnitude and frequency naivety are introduced and their implications for price discrimination are explored. In particular, it is shown that greater consumer sophistication is not necessarily beneficial for consumers, and that competition can make the exploitation of naïve consumers more ubiquitous.

The failure of the law of one price has been a puzzle for economists at least since Peter Isard's classic 1977 study. A related question in international trade has concerned the degree to which markets have become regionalized. This chapter explores whether price variability is smaller within regions than between regions, focusing on the roles of geography versus currencies. By looking at data on consumer prices, it argues that locations within a region share a unified distribution system for final goods. It first reviews some of the standard explanations for the failure of the law of one price, and then discusses how market segmentation and price discrimination can lead to failures, along with the role of sticky nominal prices. It also presents data on goods prices and examines the regressions relating price dispersion to distance and other geographic factors, variations in exchange rates, measures of trade barriers, and regional variables.

The enormous capital investment needed to create the infrastructure before any revenue could be realized inhibited the creation of the first electric utilities. Obtaining the financing for what seemed a risky investment was a major problem; the manufacturers of the equipment required by utilities adopted methods to share in those risks, but customers other than privately owned firms were seen as desirable. Many municipalities provided their citizens with utility service by establishing government-owned utilities. Large users of electricity, such as factories or hotels, invested in their own generating equipment, termed “isolated plants.”Isolated plants were serious competition to electric utilities; in 1929, 35 percent of the electricity used to power motors in manufacturing was generated outside utilities. Electric utilities employed price discrimination to deal with this competitive threat by implementing rate structures (demand charges) that based the price of electricity to a factory not on the cost to the utility of providing the current but on what it would have cost the factory to use an isolated plant. Edison’s system used direct current. The switch to alternating current in the “Battle of the Systems” made large integrated supply networks desirable but difficult under existing industry structure.

This chapter discusses regulatory approaches to promoting the transparency and accessibility of information flows. It begins with a discussion of the reasons why issuers may underproduce or restrict the optimal dissemination of information: these include the inability to internalize benefits from a public good, the opportunity to engage in price discrimination, the benefits of selective disclosure to professional traders, and limiting civil liability. It then discusses the traditional criteria that policy makers consider when establishing mandatory transparency requirements (i.e., issuer size, offering size, investor sophistication) and ensuring fair disclosure and fair access to information (i.e., usage, type, depth, pricing, channels). It concludes with a discussion of alternative approaches to tiering transparency and access rules, including issuer-driven, investor-driven, and market-driven approaches.

How should one comprehensively examine and compare drug prices in different countries? What are the reasons for the differences, large or small? Can we draw policy conclusions concerning the most appropriate regulatory response? These are the fundamental questions that should be considered regarding pricing pharmaceuticals in an international perspective. This chapter addresses these questions in three parts. First it examines the economic and institutional bases for international price variation. Next it reviews the literature on international drug price variation to see how accurately the literature demonstrates price differences between the United States and other countries. This is followed by suggestions on how improvements in the methodology for measuring international price differences can be made. The chapter concludes by asking the important question of whether uniform prices of pharmaceuticals worldwide would benefit all consumers.

Chapter 7 considers a range of conditions that are usually considered as ‘market failures’ to be corrected by governmental regulation. I discuss these conditions, and possible responses to them, from a contractarian viewpoint. I argue that neoclassical arguments for regulations against cartels and against the exploitation of monopoly power can be endorsed on contractarian grounds, as can certain kinds of regulations against spurious complexity in pricing. I raise doubts about the significance of behavioural arguments for regulation that assume choice overload or preferences for self-constraint. I develop a concept of consumers’ surplus that does not depend on assumptions about preferences, and is defined in terms of the maximum yield of discriminatory pricing. I discuss two opportunity-enhancing mechanisms for the supply of public goods.

The development of the electric utility industry has been strongly affected by specific technological and economic characteristics of the generation and distribution of electricity. Characteristics that have repeatedly affected the industry’s development and responses to different policy environments are described here and referred to in later chapters. These include the issues of the alignment of individual incentives with the interests of customers and society, government versus private ownership of firms, the major role of capital investment in firms’ total costs, and the dependence of capital costs of a firm’s peak load rather than on the total electrical energy produced and sold. The non-storability and non-transferability of electricity among customers made price discrimination possible, and the importance of joint costs made it inevitable and, perhaps, desirable. Most of the capital investment of an electric utility is transaction-specific; its costs are sunk and cannot be recovered if the equipment cannot be used as intended. The peak-load issue and the characteristics of hydroelectricity make large fully integrated networks an important source of economies. The transaction-specific nature of capital investment inhibited the achievement of those benefits. The technological characteristics of transmission make unified control of a network essential and make joint ownership problematic.