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.