Protection Against Unfair Bargaining Power

I was recently asked via Twitter if we need to pass laws to address the difference in bargaining powers between large corporations and individuals, in addition to the Non Aggression principle. Specifically the case where a large corporation comes to possess most of a highly needed commodity and could charge highly inflated prices for it.

The first thing to point out is that differences in bargaining power are not determined by the size of the bargainers. E.g. If an individual owns a small strip of land that Tesco need to widen access to a newly built £200m distribution centre, then the balance of power rests not with the mega-corporation, but with the individual.

Differences in bargaining power in any situation are determined by each side’s BATNA. (Best Alternative To Negotiated Agreement) as outlined in William Ury’s excellent book on negotiation called “Getting to Yes

So if we are concerned with legislating to protect people from differences in bargaining power, it would need to be a law to protect everyone from anyone with superior bargaining power.

How would such a law work? Who can assess the differences in bargaining power between the parties in each situation and how can such differences be fairly addressed. The seller of a luxury home is in a powerful bargaining position against someone who cannot afford to buy it, but why is that something that needs to be legislated against ?

Most (all?) differences in bargaining power are the result of previous actions taken by the parties. Provided those actions were not criminal, why should they not benefit from them ?
If I sell my house and have cash in the bank, I am in a stronger bargaining position to buy a new house than a competing buyer who still has a home to sell. I see no moral wrong here that needs to be addressed.

This does not mean that no laws should exist to protect people engaging in trade from being ripped off. If someone sells you something that is faulty or injures you, etc. then this would be covered by the law of contract, which is the mechanism for applying the non aggression principle to exchanges of property.

However, there can be no legal protection to ensure that you only pay a “fair price”.
What, other than voluntary exchange in a free market, can determine what a “fair price” is?

Free markets are remarkably robust, for a start if someone tries to buy up all of a given commodity then the increase in demand and reduction in supply make it increasingly expensive to add more to their stockpile. To buy the last few units they would have to pay a price higher than anyone else values the commodity. Once they have done that how can they sell it for a far higher price? There is nobody left who values it at more than the price they just paid!

In addition, many commodities are directly substitutable. E.g. If I somehow manage to own all the oranges and orange trees in the world I am still unable to charge £100 for an orange. People will simply substitute, apples, pears, peaches or grapefruit for their oranges.

Even if there are no immediate alternatives, high prices and monopoly profits lead to large investment in the development of alternatives. Consider patents. These act in a similar way, they give the company owning them exclusive rights to sell the technology covered by the patent. Look at the Ipad, within months of its launch people were investing in new technologies that do the same thing, creating substitutes and preventing Apple from charging whatever they liked.

There are very few commodities that are not substitutable or for which innovation cannot make substitutable.

Even for things that are not directly substitutable, there is usually the option of substituting nothing. Consider David Beckham, he owns 100% of the supply of David Beckham, a commodity that is in very high demand and (to his fans) non-substitutable. Most people simply have to do without him.

For the scenario to arise, we would need someone to own, without needing to buy in the open market, virtually all of a non substitutable commodity, which people cannot live without.

My economic answer, is that such a situation is so implausible that it certainly doesn’t require legislation to protect people against it, even if philosophically you thought they should be.

However, there is still the philosophical question. If we could imagine a scenario where one person owned all the water, would it be within his rights to demand a high price, or refuse to sell to others?

This is the situation addressed by Rothbard in The Ethics of Liberty, when talking about Hayek’s misguided views on coercion:

“Hayek commits a similar error when he deals with the refusal to exchange made by a “monopolist” (the single owner of a resource). He admits that “if . . . I would very much like to be painted by a famous artist and if he refused to paint me for less than a very high fee [or at all?], it would clearly be absurd to say that I am coerced.” Yet he does apply the concept of coercion to a case where a monopolist owns water in an oasis. Suppose, he says, that people had “settled there on the assumption that water would always be available at a reasonable price,” that then other water sources had dried up, and that people then “had no choice but to do whatever the owner of the spring demanded of them if they were to survive: here would be a clear case of coercion,” since the good or service in question is “crucial to [their] existence.”

Yet, since the owner of the spring did not aggressively poison the competing springs, the owner is scarcely being “coercive”; in fact, he is supplying a vital service, and should have the right either to refuse a sale or to charge whatever the customers will pay. The situation may well be unfortunate for the customers, as are many situations in life, but the supplier of a particularly scarce and vital service is hardly being “coercive” by either refusing to sell or by setting a price that the buyers are willing to pay. Both actions are within his rights as a free man and as a just property owner. The owner of the oasis is responsible only for the existence of his own actions and his own property; he is not accountable for the existence of the desert or for the fact that the other springs have dried up.

Let us postulate another situation. Suppose that there is only one physician in a community, and an epidemic breaks out; only he can save the lives of numerous fellow-citizens—an action surely crucial to their existence. Is he “coercing” them if (a) he refuses to do anything, or leaves town; or (b) if he charges a very high price for his curative services? Certainly not. There is, for one thing, nothing wrong with a man charging the value of his services to his customers, i.e., what they are willing to pay. He further has every right to refuse to do anything. While he may perhaps be criticized morally or aesthetically, as a self-owner of his own body he has every right to refuse to cure or to do so at a high price; to say that he is being “coercive” is furthermore to imply that it is proper and not coercive for his customers or their agents to force the physician to treat them: in short, to justify his enslavement. But surely enslavement, compulsory labor, must be considered “coercive” in any sensible meaning of the term.

The answer then is that no such legislation is required on economic grounds and philosophically such a law would break the non aggression principle, by forcing people to trade on non voluntary terms under threat of State violence.

Words by Murray Rothbard

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  • DrBlighty

    In the monopoly owner of water in the desert I believe the State has a right to intervene if the owner is unwilling to supply water to the population. The purpose of economics is to maximise social welfare and if a player’s actions run counter to that objective then it is moral for the State to intervene. 

    • Firstly, economics does not have a purpose, it is the study of human interactions in the marketplace.

      Secondly, if what you say is true then it must be moral for the state to use force to remove people’s kidneys against their will to give to those requiring transplants. This would maximize social welfare because people can get along fine with one kidney so the loss of one is not too bad, but the gain of one for those who have no working kidneys is huge. The “player” by not giving away his kidney willingly is acting counter to your objective, so bring on the jack-booted state surgeons in the name of morality!

      In fact if it is moral for the state to intervene whenever people don’t act to maximize social welfare then we must all live with next to nothing, as I explained in my post about the coffee test. http://www.libertarianview.co.uk/general-principles/do-you-really-care-about-others-take-the-coffee-test

      • Anonymous

        What is the purpose of studying human interactions in the marketplace if not to achieve some desired outcome? I suggest that outcome is to achieve the optimum allocation of scarce resources. If this objective is not explicit then I would suggest it is implicit.

        With regard to your kidney example, I would never, never, support such a move or policy. It is forbidden by the European Convention on Human Rights and Fundamental Freedoms. The medical profession or the State is forbidden from imposing medical treatment without the subject’s consent. This prohibition came about in response to the medical experiments conducted by Dr Mengele and his ilk in the Nazi concentration camps. I am a fervent supporter of human rights and the constraints they place on the State in relation to what it can do to individuals.

        I have not read your coffee test but I will take time to do so. Some preliminary thoughts meanwhile: Perfect Competition is held to maximise social welfare. In perfect competition there are a large number of buyers and sellers and no barriers to entry, amongst other features. As markets become imperfect (they tend to towards monopoly) so is social welfare impaired, at least in this paradigm. Market power accretes to firms in proportion to their relative size (how much of the market it controls).  An absolute monopoly, as can exist with water, gives the monopolist the power of life and death. I don’t see how the Libertarian view that monopoly is acceptable is consistent with non-aggression principle.  Such a monopolist would have the power to send someone to their death and what could stop it, if not the State?

        My other difficulty with the Libertarian view is that its appears to limit freedoms to the economic sphere. I do not believe that political or civic freedoms depend on economic freedoms. I believe they are independent so one can have one without the other. 

        • You say:

          “I am a fervent supporter of human rights and the constraints they place on the State in relation to what it can do to individuals.”

          Libertarianism is all about the importance of individual rights. These include the right to property that is justly acquired. The Nazis also confiscated the property of the Jews, I assume that you would consider that a violation of their rights?

          One of the early declarations of human rights (Virginia 1776) runs:

          “That all men are by nature equally free and independent, and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.”

          Is not a kidney, merely a piece of intimate personal property.

          How can you logically assert that it is OK for the State to take a man’s property if it is his water, but not if it is his kidney or the business interests of a Jew in Nazi Germany?

          You can’t have it both ways!

          Either individual rights are more important than social welfare. (In which case the state can’t steal a man’s water)

          OR

          Social welfare is more important than individual rights. (And the Jack-Booted State Surgeon’s are coming for your kidney!)

          ” I don’t see how the Libertarian view that monopoly is acceptable is consistent with non-aggression principle. Such a monopolist would have the power to send someone to their death and what could stop it, if not the State?”

          Firstly Libertarians do not accept that it is possible for a monopoly to exist in a stateless society. Monopolies in the real world are caused by government restrictions on competition. However, as in the water example let us assume for the sake of argument that a monopoly can exist.

          Let us imagine that there is a person who will die if he does not receive a kidney and that kidney is of a very rare type. Only one person has a matching kidney (A total monopoly of supply) and that person is you.

          Are you “Sending someone to their death” if you don’t give them one of your kidneys. Must the state stop you, by sending along its Jack-Booted surgeon enforcers!

          You did not cause the patient to need a kidney and he has no right to take yours by force, either with or without the assistance of the state.

          Same with the water example. The owner of the well did not cause the water shortage for the others and they have no right to take his water with or without the help of the state.

          Aggression has to be a positive act, you cannot commit aggression by refusing to help another get out of difficult circumstances. I am not saying you shouldn’t help, that is a matter for each individual, what I am saying is that the state has no right to force anyone to help.

          Finally, you say:

          “My other difficulty with the Libertarian view is that its appears to limit freedoms to the economic sphere. I do not believe that political or civic freedoms depend on economic freedoms. I believe they are independent so one can have one without the other”

          Libertarian’s have one simple rule the NAP. Which is not economic at all, it simply states that people should be allowed to live their lives however they wish as long as they don’t interfere with the person or justly acquired property of another via aggression or the threat of aggression. It is perfectly possible for people to live in a Libertarian society and choose to abandon all economic freedoms and live in a state of economic socialism, as long as they don’t force anyone else to. I cover this here: http://www.libertarianview.co.uk/general-principles/libertarianism-welcomes-non-violent-socialists-islamic-fundamentalists-and-fascists

          • Anonymous

            The right to property and enjoyment of it is covered in Article 1 of Protocol 1 of the European Convention of Human Rights. Of course the confiscation of the property from the Jews by the Nazis is wrong! The confiscation was done on racial grounds, was complete, and was done for no legitimate purpose. Taxation is different because it is not done on racial grounds, is not complete and is done for the legitimate purpose of providing public services.

            I am pragmatic,  believing that sometimes the State’s objectives must prevail over an individual citizen’s and sometimes a citizen’s rights must trump the State’s. Removing a kidney is such an example. I do not believe a kidney is property in an economic sense and should be differentiated from a person’s real and financial assets. 

            As with most workable philosophies a balance must be struck between the rights of the individual and the needs of the collective. The ECHR and the HRA seek to do this. Hence some individual rights are qualified to allow the efficient performance of justice and government to take place.

            It is also of note that human rights legislation in Europe does not mandate how economic resources must be allocated or distributed. It leaves this to the electorate whose right to vote is protected by the Convention. If the electorate votes for taxation and for specified public services then the Convention respects this. 

            The UK State is not a monopoly supplier of health care or education. Private firms in both sectors enjoy tax breaks. People are free to go private if they choose. 

            I do agree that the State should have no right to force/oblige an individual to help another. This is a matter of individual choice. But that is different from the State intervening to help an individual. Allowing individuals to die of hunger would almost certainly breach the State’s obligation under the European Convention to preserve life. Quite right too in my view. The State can be made an instrument that serves humanity and the common good, as well as the means of preserving individual liberty. That it has not achieved this so far does not mean that it can’t or won’t. It is up to people of goodwill to fight for this outcome.

          • Anonymous

            The individual is the state.  This is the point of being a libertarian.  This is why you are not a libertarian.

            The questions you pose offer no insight because they are set in the world in which you live, where you are free, only from making the choice of how you are confined. 

            A libertarian confines his self.

            It is in his interest to protect the life, liberty and property of others, so that they will protect his.

            It really is very simple.  It’s all about being nice to each other.