Working Paper No. 04-53:
Putting Humpty Dumpty Back Together: Pricing in Anticommons Property Arrangements

Author(s):

Ben Depoorter, Sven Vanneste

Date Posted: 2004

Availability:
Abstract (below)
Full text (original)   PDF file
Full text (most recent) on SSRN

Abstract:

Recently, a new theory has drawn considerable attention in the literature on common property. A number of scholars have pointed to the danger of excessive propertization in the context of what are termed "anticommons" property regimes. Although this theory has found its way into numerous legal and economic applications, the empirical and cognitive foundations of the theory of fragmentation remain unexplored. Based on experimental data, this Article conducts an investigation intmo the social and personal processes involved in the anticommons.

The results confirm the theoretical proposition that anticommons deadweight losses increase with the degree of complementarity between individual parts and with the degree of fragmentation.

Our study also provides three novel insights into the problem of fragmentation. First, the data illustrates that individual right holders base their reservation price on a proportion of the expected surplus of the bundler-purchaser, disregarding the objective value of the resource. Second, the experiments suggest that uncertainty amplifies the anticommons pricing effect. Individual right holders ignore the expected value of the purchaser's project, and instead focus on the upper range of profitability and surplus. Willingness to accept is anchored onto a proportion of the maximum profitability, rather than a proportion of the expected benefits of the project. Finally, throughout the experiment reservation prices seem to be consistently lower in cases where there exists large uncertainty within the range of positive outcomes, relative to scenarios where there is relative certainty regarding a positive outcome but which includes the possibility of a (modest) negative outcome. Subjects seem to emphasize the relative low probability of success over the possibility of a negative outcome.

The experiment provides clear indications of the pricing effect in settings where complementary units are fragmented over individual right holders. Given the stickiness of initial selling prices, and the prospective costs of the required negotiations to drive prices down to the expected value of the project, value maximizing projects might be abandoned, leading to the tragic outcome of under use or idleness. The results thus reinforce the normative hypothesis of the anticommons: property right systems should be careful in allowing the liberal creation and fragmentation of property rights.