The Economic or Private Theory of Regulation Why has regulation so often had little if any effect in reducing the profitability of regulated industries?. Probably the biggest impetus to
Trang 1Regulation of Destructive Competition
Another argument for government regulation is based on the existence of destructive,
ruinous, or cutthroat competition In direct contrast to the natural monopoly situation,
where there is a shortage of competition, the destructive competition argument centers on
a surplus of competition In industries specialized as to location or purpose where there
are high sunk costs in assets coupled with low operating costs, short-run bouts of
intensive and perhaps destructive price cutting may emerge Presumably, excess capacity triggered cutthroat competition in the early days of railroads Competition among
electric utilities, who must transmit power through wires, could mean several sets of
power lines running down city streets, creating an environmental mess This may be an
argument for a government protected and regulated monopoly on the transmission of
electricity, but it has no bearing on the need for regulation of the generation of electricity The interstate pipelines for gasoline products are regulated, but there is competition
among producers and refiners Even if there were only one refiner, it would have to base its pricing decisions on what other firms might do if it tried to extract monopoly profits
The generation of electric power can be organized in a similar way Duke Power, which
serves parts of North and South Carolina, has proposed such a reorganization As one of the nation’s most efficient producers of electricity, Duke stands to expand its market
share under a competitive system
Regulation of prices is sometimes advocated as a safety measure Some firms—for example, airlines and nuclear power companies—under competitive pressure to control
costs may cut corners on safety Regulation that keeps prices above competitive levels
can induce such firms to compete in other ways—in terms of food quality, size of seats,
or flight safety, for instance Thus regulation can be seen as a means of correcting an
under-production of safety (If this argument is correct, the deregulation of airline rates
in 1978 should have lowered the airline safety ratings.)
Critics of this theory suggest that a desire to avoid higher insurance premiums gives unregulated firms an incentive to maintain their safety precautions Safety costs may not
be completely internalized by insurance premiums, however, as illustrated by the 1984
accident at the Union Carbide plant in Bhopal, India, which killed over twenty-five
hundred people and injured thousands of others Given continued population growth and industrial concentration, regulation in the interest of public safety may be expected to
increase
The Evidence on Regulation
The public interest theory is not applicable to all forms of government regulation
Clearly environmental, traffic, and other safety rules promote public goals Nevertheless, economists worry that such regulations can be used to thwart competition Most
environmental laws impose more stringent pollution standards on new sources of
pollution than on old ones The ostensible reason for this double standard is that new
sources can meet the requirements at lower cost than old ones can, but such provisions
can also be used as barriers to entry into competition
Trang 2Research has raised especially serious doubt about the usefulness to the public of
economic regulation—regulation designed to restrict entry, pricing, and production
decisions in specific industries like trucking, airline, bus, stockbrokerage, taxi, cable, and
shipping services that appear to be competitive or contestable In such industries, which
were heavily regulated in the past, neither the prices charged nor the difficulty of entry
can be justified on the grounds of efficiency Much research, for example, suggests that
the regulation of electric power companies has tended to prop up electric rates and to
favor industrial and commercial users over residential users6 Even in areas such as legal
services and drugs, where the need for regulation has seldom been challenged, its value to the consumer is now being questioned
Does regulation affect the competitive performance of an industry? The evidence is mixed, and open to differing interpretations Many health, environmental, and safety
regulations have clearly imposed substantial costs on businesses, consumers, and
workers Both the profits and the competitiveness of U.S steel firms and the wages of
steelworkers appear to have been seriously damaged by environmental legislation, for
instance
In the late 1960s and 1970s, regulation may have depressed the returns earned by
electric utilities Regulated industries have always had to wait for an upward adjustment
of rates after a rise in costs Apparently the unusually high rates of inflation during that
period increased the strain on regulated industries The story was different in the airline
industry, however As one researcher wrote, “Paradoxically the [Civil Aeronautics
Board’s policies, on the whole, have probably had little effect on the rate of profit earned
by the industry; but, without the Civil Aeronautic Act and the Board, these profits would
have resulted from quite a different sort of operation.”7 It was such arguments that led to the deregulation of the airline industry in the late 1970s Other scholars have complained that FCC restrictions on entry into the broadcasting industry have enabled established
broadcasting firms to make substantial profits
In the trucking industry, regulation had particularly poor results Until the industry
was partially deregulated in the 1970s, the ICC turned down hundreds of applications a
year to enter the trucking business or extend existing service In fact, from the late 1930s through the 1960s, the number of licensed carriers actually decreased because of
regulation by the ICC Regulations designed to ensure a “stable trucking industry”
frequently took trucks miles out of their way, increasing the cost of hauling cargo and the
rates charged After taking a load to one destination, carriers were forbidden to pick up
cargo for the return trip
The railroads had an entire century of regulation-induced problems The results
since deregulation in 1980 have been staggering Prices have fallen, service has
improved, profits have increased, and federal subsidies have fallen almost 90 percent
6
For reviews of empirical studies and conceptual arguments, see Paul W MacAvoy, ed., The Crisis of the
Regulatory Commissions: An Introduction to a Current Issue of Public Policy (New York: W.W Norton,
1970); James Miller III and Bruce Yandle, eds., Benefit/Cost Analysis of Social Regulation (Washington, D.C.: American Enterprise Institute, 1979); and George C Eads and Michael Fix, eds., The Reagan
Regulatory Strategy: An Assessment (Washington, D.C.: Urban Institute, 1984)
7
Richard W Caves, “Performance, Structure, and the Goals of Civil Aeronautics Board Regulation,” in
The Crisis of the Regulatory Commissions, p 134
Trang 3Additional gains will be more difficult as there are still many regulations in railroads,
especially in labor-management relations
Overall, the weight of the evidence is against much economic regulation It is true
regulatory agencies have sometimes denied rate increases and required firms—railroads
and airlines, for example—to maintain services they would otherwise have eliminated
Many economists, however, question whether regulatory agencies as a group have been
pursuing the public interest in any systematic way
The Economic or Private Theory of Regulation
Why has regulation so often had little (if any) effect in reducing the profitability of
regulated industries? Perhaps regulators have been inept at carrying out their
responsibilities—or regulation may be too difficult a task for any one agency to handle
properly Regulated firms have an incentive to deceive their regulators by fudging their
books to inflate their costs As we have seen, gathering accurate information on a
company’s true costs and profits can be prohibitively expensive Even with accurate
accounting, there is an incentive to “gold plate” costs, as firms operate on a cost-plus
basis If demand is inelastic, these inflated costs can be passed on successfully to
consumers Moreover, regulation focuses on static efficiency and provides inadequate
incentives for dynamic efficiency A cost-saving innovation could lead to a cut in the
utility’s price
A second explanation might be that while regulators are concentrating on prices and barriers to entry, firms may maintain profits by reducing the quality (and therefore the
cost) of their products and services
The intent of regulation may also be circumvented in another, more subtle way
Regulators sometimes determine prices on the basis of a so-called fair rate of return or
profitability on capital investment Such a standard encourages firms, particularly
utilities, to substitute plant and equipment for other resources, such as labor, which do not count as investment For example, suppose a regulatory agency establishes that 10
percent is a fair return on investment Firms will then be allowed to make profits equal to
10 percent of the value of their plant and equipment Suppose further that the same
amount of additional electricity can be generated by spending $1 million on plant and
equipment or $1 million on labor If a firm invests in plant and equipment, it can ask the
regulatory agency to raise its rates to allow for an additional $100,000 in profit (10
percent of $1 million) If it uses labor instead, it will have no increase in investment on
which to base a request for a price increase By making production capital-intensive,
firms can circumvent the intent of regulation
Thirdly, although regulation may be instituted with good intentions, regulators may
become the pawns of regulated firms If regulatory agencies are staffed by men and
women who made their careers in the industries they are regulating, regulated firms may
gain undue influence over regulatory policy
Finally, the biggest shortcoming of regulation is that it often has been applied to
competitive or contestable markets Even if originally the market was a natural
monopoly, it may have moved through a cycle where it is now competitive and thus no
Trang 4longer in need of regulation Many regulated industries are not now (and perhaps never
have been) natural monopolies (e.g., motor trucking) In addition, some natural
monopolies (e.g., main-frame computers) may have escaped the intricate web of
regulation
For all these reasons, many economists have begun to discard or at least downplay the public interest theory of regulation in favor of an industry-centered view Instead of
seeing regulation as something thrust on firms, they have begun to view it as a service
frequently sought by those who are regulated.8 It is important to recognize that the public and private interest theories are not necessarily diametrically opposed The seeking of
private interest is consistent with certain types of efficient regulation, and the public
interest theory recognizes that mistakes and culpable regulators make regulation
inefficient at times
Probably the biggest impetus to the economic theory of regulation was the
inadequacy of the public interest theory in answering two essential questions: Why were
inherently competitive or contestable industries such as airlines, taxicab, and trucking
regulated if the purpose was to protect against natural monopolistic pricing? Why do
unregulated firms persistently desire to enter regulated industries if regulators push prices
and profits to the bare-bones competitive level?
The Supply and Demand for Regulation
In the new expenditures theory of regulation, government is seen as a supplier of
regulatory services to industry Such services can include price fixing, restrictions on
market entry, subsidies, and even suppression of substitute goods (or promotion of
complementary goods) For example, regulation enables producers to suppress the sale
of margarine in Wisconsin Through the FCC, commercial television stations have been
able to delay the introduction of cable TV
These regulatory services are not free; they are offered to industries willing to pay
for them In the political world, the price of regulatory services may be campaign
contributions or lucrative consulting jobs, or votes and volunteer work for political
campaigns Regulators and politicians allocate the benefits among all the various private
interest groups so as to equate political support and opposition at the margin
Firms demand regulation for their own private-interest, rent-seeking reasons As
we have seen, forming a cartel in a free market can be difficult both because new firms
may enter the market and because colluders tend to cheat on cartel agreements The cost
of reaching and enforcing a collusive agreement can be so high that government
regulation is attractive in comparison
The view that certain forms of regulation emerge from the interaction of
government suppliers and industry demanders seems to square with much historical
evidence As Richard Posner has observed,
8
See George J Stigler, “The Theory of Economic Regulation,” in The Citizen and the State (Chicago:
University of Chicago Press, 1975), and Stephen Breyer, Regulation and Its Reform (Cambridge, Mass.:
Harvard University Press, 1982)
Trang 5The railroads supported the enactment of the first Interstate Commerce Act,
which was designed to prevent railroads from price discrimination because
discrimination was undermining the railroad’s cartels American Telephone
and Telegraph pressed for state regulation of telephone service because it
wanted to end competition among telephone companies Truckers and
airlines supported extension of common carrier regulation to their industries
because they considered unregulated competition excessive.9
Barbers, beauticians, lawyers, and other specialists have all sought government licensing,
which is a form of regulation Farmers have backed moves to regulate the supply of the
commodities they produce Whenever deregulation is proposed, the industry in question
almost always opposes the proposal
Regulation as a Public Good for Industry
To the extent that regulation benefits all regulated firms, whether or not they contributed
to the cost of procuring it, industries may consider regulation a public good This creates
a free-rider problem, which occurs when people can enjoy the benefits of a scarce good
or service without paying directly for it by pretending not to want that good or service
Some firms will try to free ride on others’ efforts to secure regulation If all firms free
ride, however, the collective benefits of regulation will be lost
The free-rider phenomenon is particularly noticeable in large groups, whose cost
of organizing for collective action can be substantial Someone must bear the initial cost
of organization Yet because the benefits of organization are spread more or less evenly
over the group, the party that initiates the organization may incur costs greater than the
benefits it receives Thus collective action may not be taken Free riding may explain
why some large groups, such as secretaries, have not yet secured government protection Everyone may be waiting for everyone else to act Small groups may have much greater
success because of their proportionally smaller organizational costs and larger individual
benefits Perhaps it was because only a few railroad companies existed in the 1880s that they were able to lobby successfully for the formation of the ICC
There are some exceptions to this rule Several reasonably large groups,
including truckers and farmers, have secured a high degree of government regulation,
while many highly concentrated groups, such as the electrical appliance industry, have
not In highly concentrated industries It may be less costly to develop private cartels
than to organize to secure government regulation In industries composed of many firms,
on the other had, any one firm’s cost of securing regulation may be smaller than the costs
of a cartel Large groups also control more sizable voting blocks than small groups
They may have the advantage of established trade associations, whose help can be
enlisted in pushing for protective legislation.10
9
Richard A Posner, “Theories of Economic Regulation,” Bell Journal of Economics and Management
Science (Autumn 1974), p 337
10
See Mancur Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1971) Chs 1 and 2
Trang 6In broad terms, the economic theory of regulation explains much above
government policy—but that is one of its weaknesses It is so broad as to limit its
usefulness as a predictor It does not enable economists to forecast which industries are
likely to seek or achieve government regulation Nor does it explain the current
movement to deregulate the trucking and banking industries, or to regulate the
environment Neither of these trends appears to meet directly the demand of any
particular business interest group In general, any self-interested group will be better
represented the larger its interest in the outcome, the smaller its size, the more
homogenous its position and objectives, and the more certain the outcome
Regulation as Taxation
According to a third theory, much of today’s regulation can be explained as an indirect
form of taxation—in the sense that taxation is the government’s means of extracting
money to pay for what are viewed as public goods and services For example, until 1978, airlines were permitted to charge fares that exceeded their operations costs for long-haul
flights The extra revenues helped subsidize the below-cost pricing of short-haul flights
and compensated airlines for their losses on unprofitable routes they were required to
serve In effect, some airline passengers were taxed to subsidize the fares of others
In the postal service, another closely regulated industry, revenues from first-class postage have for years offset losses on magazines and bulk mail Again, through
regulation, one group of customers is taxed for the benefit of another Seen this way,
regulation appears to be a rather clumsy way of administering national tax policy—one
that raises serious questions of equity in the distribution of the tax burden
In general, transfers through “regulatory taxation” tend to go from dispersed to
concentrated interests and are made as efficiently as possible, although inefficient
transfers frequently occur There is also a preference for disguising the costs imposed on victims of inefficient transfers and for broadcasting the benefits bestowed on recipients
The Deregulation Movement
Recent years have seen a plethora of proposals to “deregulate”—actually “reregulate,” as some type of government intervention still generally prevails—American industry
Airline (1978), trucking (1980), and railroad (1980) rates and routes have been
deregulated The price of natural gas was decontrolled in 1986, and the elaborate price
controls on oil are more or less dismantled Banks are now permitted to pay interest on
checking accounts and are almost completely free to allow market forces to determine the interest rates on all their accounts Surface freight forwarding had its entry, exit, and
pricing deregulated in 1987
Because economists have not extensively investigated the impetus for and results
of deregulation, any assessment of the trend to deregulate must be considered tentative
In some cases, deregulation may have been a straightforward response to the
inefficiencies of regulation This seems a reasonable explanation for the deregulation of
natural gas The restricted supplies and shortages that characterized the industry under
regulation were clearly not in the public interest
Trang 7The period of unusually rapid inflation in the late 1970s may also have
encouraged the movement toward deregulation In many industries, the process of
seeking approval for price increases was cumbersome and time consuming, so that
regulated prices lagged far behind the current rate of inflation Under the circumstances,
industry may have preferred the more competitive and flexible market system to the
comparatively rigid regulatory system This seems a reasonable explanation for the
deregulation of truck rates and railroad routes in 1980 It may also explain why,
beginning in 1980, banks were allowed to pay interest on checking accounts Bankers
may not have wanted to pay interest, but they had little choice, given the high returns
depositors could earn on corporate and government bonds
Another possibility is that regulated industries may simply have been
outmaneuvered politically by consumer groups such as Common Cause and Ralph
Nader’s Public Interest Research Group The votes of group members may have wielded more influence with Congress than industry’s campaign contributions, especially after the
size of political contributions was restricted This may explain why the airline industry
was deregulated in 1978 despite industry opposition One regulatory agency, the Civil
Aeronautics board (established in 1938), that had had economic control of commercial air transportation was even abolished in 1985
It is possible, however, that regulation has not decreased overall In the late
1970s, the visible foot of government was stepping into such new areas as the
environment, worker health, and safety These new regulations increased the effective
tax on business, and thus the prices businesses charged consumers Without doubt, the
government’s capacity to tax—that is, to impose costs on the private sector—is limited Perhaps by deregulating some industries, the government reduced the effective tax in one area in order to increase it in others
Economic theory suggests that whenever an industry is deregulated, there will be
both gainers and losers When the price of oil was decontrolled, for example, the losers
were the consumers who found their purchasing power reduced by higher prices Unless those who are hurt by deregulation are somehow compensated for their loss, they can
create strong opposition to the change One way the head off such opposition is to tax the gainers and subsidize the losers from deregulation The windfall profits tax may be an
example of such a scheme When oil prices were deregulated in 1980, Congress imposed
a heavy tax on profits it the domestic oil industry The revenue from the tax was to be
used for research on alternative energy sources like gasohol, and for low-income fuel
subsidies
Of course, the objectives and results of regulation cannot be evaluated solely in
economic terms Regulation may be intended to give citizens more influence on critically
important decisions, such as the production of power, transportation, or defense
readiness Such objectives are essentially political, rather than economic, in nature
Trang 8PERSPECTIVE: The Break-Up of AT&T
William F Shughart, III, University of Mississippi
Before 1983, the U.S telephone industry was a textbook example of a regulated natural monopoly Once the basic switching equipment, trunk lines, and satellites are in place, the average cost of providing telephone service falls with increased output Thus the industry came to be dominated by a single firm Government regulation was justified as a way of controlling the monopolist’s tendency to charge more than the marginal cost
of service
Although telephone service was regulated in the public interest, not all groups fared equally well under Federal Communications Commission (FCC) control For example, the rate structure benefited local customers
at the expense of long-distance customers This cross-subsidy generally worked against commercial callers, whose demand for long-distance service was greatest during normal business hours, when rates were highest Of course, AT&T benefited from barriers to the entry of new firms But in the 1970s, the tables were turned, and AT&T itself became the victim of regulation
Judge Harold Greene’s historic decision ordering the breakup of AT&T followed a series of events that had been auguring change for over a decade Most important was the development of microwave and satellite transmission technologies, which freed communications signals from earthbound telephone lines In addition, since 1968 the FCC had been allowing customers to connect non-AT&T equipment to the Bell network
Throughout the 1970s it permitted new firms to compete with AT&T for long-distance service AT&T was particularly hurt by the advent of competition in the long-distance market, which had long been among the most profitable of its operations Discount carriers could charge less for the use of their long-distance transmission facilities mainly because they did not need to pay for switching equipment and local lines, which were owned by AT&T In effect, MCI Communications Corporation and others were skimming the cream from AT&T’s
business
By the late 1970s, then, the telephone industry was partly monopolistic (local service) and partly
competitive (long-distance service)—and unworkable situation, from AT&T’s perspective One solution would have been t o include the new carriers under the FCC’s regulatory umbrella The alternative was to break up Ma Bell, and this was the course advocated by the Department of Justice in its antitrust suit against AT&T, filed in
1974 In 1982 AT&T reached an agreement with the Department of Justice, approved by Judge Greene, which allowed it to retain its long-distance business Its local business was divided among twenty-two local service companies In return, AT&T was released from regulations that had prevented it from entering the computer business
The history of AT&T shows clearly that regulation is not uniformly beneficial Under deregulation increased competition has led to a proliferation of new telephone equipment and a decline in long-distance rates Yet higher local rates and monthly access charges for long-distance service may wipe out those short -run gains Those who predict that local rates will eventually rise are assuming that before the breakup, AT&T was exploiting monopoly power only in the long-distance market In other words, long-distance rates were set above marginal cost to make up for the revenue lost on local service Differences in the profitability of the two
markets may have stemmed from differences in the levels and elasticities of demand If this latter view is
correct, prices for local service may not rise
The FCC apparently continues to view local telephone service as a natural monopoly Local service companies retain the exclusive right to provide local service They remain subject to regulation by a variety of federal, state, and local agencies Yet increasingly, business customers have bypassed local companies by establishing their own in-house communication services The fact that these arrangements are viable on a much smaller scale than that of a local telephone monopoly suggests that the natural monopoly argument may no longer be valid In any case, the availability of alternative arrangements for telephone services will restrain the local monopoly’s ability to raise prices
In sum, the telephone industry is now in a period of transition characterized by rapid changes in both structure and technology, a phenomenon well into the 21st century The future development of AT&T should provide some interesting examples of the effects of regulation and deregulation
Trang 9MANAGER’S CORNER: The Value of
“Mistreating” Customers
Have you ever heard of a business consultant recommending to her clients that they
mistreat their customers? Probably not The standard recommendations consist of such
advice as give customers what they want, pamper them, treat them as individuals, and
never attempt to force them to do things they don’t want to do Most of the time this is
surely sound advice But not always More often than not in business, consultants seem
to realize, business can provide more value to their customers by mistreating them by
giving them what they individually don’t want, by ignoring their individual desires, by
requiring that they do things they would not voluntarily do, and by charging them high
prices for frills that cost more than they are worth
If people always consumed services individually, with the value they received
from their consumption unaffected by what others do, then mistreating them would
seldom be a good business strategy But many services are consumed either together, or
in the presence of others When this is the case, suppliers should always be alert to the
possible collective benefits that can be realized by both them and their customers by
mistreating them on an individual basis
Putting Demands on Customers
In many cases, the benefit from mistreating customers is explained by the fact that by
mistreating individual customers, a supplier allows the customers to overcome a
prisoners’ dilemma and be better off collectively To see why, assume that you are the
manager of a shopping mall that is soon to open for business and are anxious to attract
retailers who will pay as much as possible for the opportunity to locate in your mall This
is a situation in which you should not be too accommodating to each potential customer,
or tenant, in this case A far better approach is one of creatively “mistreating” them
requiring that they operate their stores in ways other than they would voluntarily choose
if given a choice
Hours of operation are one of the most important requirements you should impose
on prospective tenants It would be unusual if all tenants chose the same hours of
operation But you as manager would be smart to require that all tenants keep their stores open similar hours The most obvious reason is there are significant costs involved in
having the mall open, and it often doesn’t make sense to incur those costs if only a few
stores are open You wouldn’t want to keep a large mall open, for example, to
accommodate a convenience store that wanted to stay open all night This is why you
don’t find convenience stores operating in malls
The most important reason, however, for requiring that all tenants in the mall
operate similar hours is because it has the effect of lengthening the number of hours they
are open When one store is open for business, it attracts consumers that benefit other
stores Indeed, one of the primary reasons stores like to operate in malls is they each
receive spillover business from customers who came to the mall to shop at other stores
But this means that when a store is open, it is creating benefits that it is not capturing
entirely for itself, and therefore a benefit that it would ignore in its own decision to stay
Trang 10open or close This suggests that if left to decide on its own, each store would likely stay open fewer hours than is best from the point of view of all stores As manager of the
mall, it is your job not to ignore the spillover business that stores generate for each other Every store can benefit if it is required to stay open longer hours than it would choose to
on its own
Consider a hypothetical example in which each store owner in the mall would
independently choose to keep his or her store open 40 hours a week, with the result that each store earns profits of $1,000 per week Assume also that if any one store increased its hours to more than 40 hours a week on its own, with all other stores staying with their
40 hour per week schedule, the store staying open longer would see its cost increase with very little additional business as a consequence Its profits would fall to $900 per week
On the other hand, if all but one of the stores increased their hours to 48 hours per week, they would each increase their profits to $1090 per week, as the mall became more
convenient for, and popular with, shoppers But the one store that remained open only 40 hours would be able to free ride on the additional popularity of the mall and would then
earn $1150 profit per week On the other hand, if all stores operated 48 hours per week, all stores would earn $1100 profit each week Total profits are greater if all stores stay
open 48 hours (assuming there are more than 15 stores in the mall), but individually each
store would choose to operate only 40 hours As the manager of the mall, you will
increase the value the mall provides tenants therefore the amount they are willing to
pay in rent by going against the wishes of each tenant and imposing a 48-hour schedule
of operation
By imposing hours on all stores that are longer than any one would unilaterally
choose, you have benefited all of the tenants by removing them from a prisoners’
dilemma A good mall manager will be constantly alert to other areas where he or she
can require tenants to do things they would not individually choose to do (or prohibit
activities they would individually choose to do), but which create a more profitable
setting when done by all (or not done by any) For example, individual stores may profit
from having clerks standing outside their stores’ entrances and aggressively soliciting
passing shoppers to come in But if this became a common practice, all stores could
suffer with consumers feeling less comfortable shopping at the mall and taking their
business elsewhere So all storeowners are collectively better off if all such solicitations
are banned They could earn more from a greater number of shoppers and more sales, so you could earn more in rent from the storeowners On the other hand, a policy of
requiring that each store in the mall advertise in the local paper (or on local TV and
radio), more than any store would individually choose to do, can increase the profits of
all by increasing the number of shoppers coming to the mall
The situation at a mall is similar to that in a community of home owners who are
subjected to a covenant imposing restrictions on such things as the color of the houses,
the type and maintenance of the landscaping, and the number of cars that can be parked
outside overnight Almost everyone living in such communities dislikes some of the
restrictions Yet people are willing to pay more to live in communities with covenants
because the cost to each family of abiding by the restrictions is less than the benefit
realized from having the restrictions imposed on others