The Economic Impact of Property Rights

Coase Theorem

This past semester in my Economics class, I learned the impact of property rights. In specific, the professor went into depth about the Coase Theorem and how as long as property rights are well established and there is a low cost of fees to do business, each firm can interact with each other to gain a benefit that the other may need.

For example, say you have a chemical plant and a boat ride company located near a river. If there are no established property rights, then the chemical plant is free to pollute the water and make the boat ride company lose business. However, if a regulatory agency states that the boating agency has property rights over the river than the chemical plant does not have the right to pollute the river. Since property rights are now established, there can be an interaction between the two companies. The chemical plant can discuss with the boat ride company if he can compensate the boat company by producing his chemicals and continuing his business. The boat company can receive a money amount from the chemical company that will make him content. This form of compensation allows the two companies to create a better environment by utilizing market forces instead of outside enforcement.

In China, many foreign companies’ products’ are copied and sold in fake markets. Property rights may not be well defined in outside markets however is the same true on the internet? Recently, Burberry has been awarded $100 million dollars by a Manhattan federal court, on a counterfeiting lawsuit against Chinese websites that were selling fake Burberry products. This lawsuit is also contingent on third party sites that direct visitors to places that sell fake products, i.e. Facebook, Twitter, and Google. With this being said, I believe Burberry has utilized regulatory agencies to establish well defined property rights on their products over the internet. However, will this finally benefit both sides? Clearly not, because the Chinese manufacturers will lose money and there will be jobs lost in China, yet Burberry has one less fake producer to worry about and they can protect themselves from other infringing companies.

Article On Burberry Lawsuit