Coasean Bargaining Around Wrigley Field

13 August 2009 at 11:49 am 11 comments

| Peter Klein |

While enjoying the Phillies’ 12-inning victory over the Cubs Tuesday night Joe Mahoney, Jongwook Kim, and I talked about the implications of the Coase Theorem for the Wrigley Rooftops. The rooftop seats are still there — and some are quite fancy — despite many attempts by the Cubs over the years to have them removed, as beneficiaries of an unwarranted positive externality. Apparently a few years back the Cubs sought an injunction against the rooftop owners on grounds of copyright infringement, and most of the owners agreed in an out-of-court settlement to pay royalties to the team in exchange for official endorsement.

One can imagine other ways to internalize the externality — the team could build a wall to obscure the view, buy out the rooftop buildings’ owners, or pay them to take down the seats. There are only a dozen or so buildings, so I don’t imagine that the bargaining costs are very high, suggesting that the current arrangement is the one that maximizes joint surplus, but some of you readers must be much more familiar with the details. What’s going on, from a Coasean perspective? Certainly this is an interesting example for a classroom discussion of property rights and the Coase Theorem. I thought I’d find several online discussions but a quick Google search came up with just one law-review article. It seems that more recently, the club has been going after the rooftop owners not for selling seats, but for using the Cubs logo without permission.

Entry filed under: - Klein -, Law and Economics.

Heterogeneity and Health Care Greif Under Fire Again

11 Comments Add your own

  • 1. Cliff Grammich  |  13 August 2009 at 12:36 pm

    From a Coasean perspective, initial allocation of property rights matter, right? The rooftop “rights” actually weren’t worth much not that long ago, and public opinion seemed to be that the owners (and even the tenants) had and should have them.

    I assume the worth of such rights is maximized–and of greatest concern to TribCo–when the Cubs routinely sell out. But that hasn’t happened for as long as you might think. Yes, the Cubs have been at capacity for about six years now, but not in many years before that. Indeed, the year before TribCo bought the team, the Cubs averaged less than 10K fans per game. (TribCo exploitation of the “synergy” between its paper, its radio station, its television station, and its baseball team, and even the complications those have posed for the pending sale of the team, might make an interesting O&M post in its own right.)

    Anyway, in point of fact (or at least as I recall), TribCo *did* try to build a screen to obscure the view from the rooftops, but this had predictable effects, including political ones. Given that the team needs, among other things, a wide variety of “services” from the city (e.g., permission to hold X number of night games, extra police on days of games, building and health inspections or certifications), I suppose reaching the current arrangement was the least surprising outcome. Buying out the rooftop owners, or paying them to take down the seats, would likely stoke similar populist outrage against the large TribCo (even if, as I assume, the rooftop owners have become at least small-scale corporations in their own right).

  • 2. Jongwook Kim  |  13 August 2009 at 10:52 pm

    Actually, the Coase Theorem says that initial allocation of property rights do not matter since frictionless bargaining should lead to the most efficient allocation of property rights. The real question Coase is asking is whether allocating property rights in a certain way is more beneficial than allocating in an alternative way. Are we better off with locals being allowed to peek in and watch the game from rooftops? Or are we better off with MLB being able to control how people enjoy the game? The bargaining process would reveal each party’s true preferences and thus allow the solution to be an efficient one.

    Let’s say, for instance, Congress tried to step in and resolve this problem by forcing the building owners to compensate MLB for infringing on MLB’s exclusive rights. This is not necessarily good for MLB as there will be far-ranging consequences (as mentioned in the above posting), many bad, for MLB in general and for Cubs in particular.

    But, if we were to let building owners bargain directly with the Cubs and MLB, then the result will be side payments (which don’t have to be monetary) that perfectly reflect the value of the seats on buildingtops (to both sides), a win-win situation for both sides.

  • 3. Cliff Grammich  |  14 August 2009 at 8:45 am

    Jongwook, thanks for the correction. I’ve another question below. Peter suggests the bargaining costs aren’t very high. I suppose that’s true at some level, but how are they measured, can they escalate more for one party than another, and will that affect the ultimate outcome?

    Here’s my point: I think the political reality is the Cubs have just about maximized the revenue they can get from the rooftops without incurring unacceptable (to them) political costs (which may or may not be of interest here and may or may not be measurable), costs they are far more likely to incur (or care about) than the rooftop owners are.

    I looked a little further into this and learned much but not all of my memory was correct: nobody really cared about the rooftop rights until relatively recently, and, after the Cubs started to care more (primarily because they were becoming more likely to draw capacity crowds), they did indeed try to install a “wind screen” to block the view. Where my memory was mistaken was on the public reaction, at least as reported in the papers at the time. It was more mixed than I recalled, with some fans (including those who wanted more Wrigley capacity) sympathizing with the Cubs but with the Cubs still taking some shots (and one fan in a letter-to-the-editor saying the rooftop experience was more pleasant than the ballpark one, and without one he wouldn’t “attend” at all).

    But I suspect the Cubs would still pay a political price if they were to seek more control over the rooftops (including the far-ranging consequences you mention). Perhaps more precisely, should negotiations for same become very protracted or the Cubs seek to play too much, um, hardball, the Cubs (or TribCo) would pay a political price that they may understandably be very reluctant to pay but that isn’t as bothersome to (or may not even be incurred by) the rooftop owners (who are less visible to the public and do not have “community institution” products also to sell). Possibly more succinctly: bargaining costs could escalate more rapidly for the Cubs than for the rooftop owners.

    Not sure how much of that makes sense or is of relevance to Peter’s original question . . .

  • 4. Cliff Grammich  |  14 August 2009 at 9:24 am

    On further reading, it appears to me Jongwook Kim made much of the point I had to make about, um, hardball negotiating tactics (or I’m reading the comment wrong) . . .

  • 5. Humberto Barreto  |  14 August 2009 at 10:13 am

    I think bargaining costs are high precisely because PR have not been allocated. While the invariance proposition and wealth effects take most of the attention, a fundamental idea in Coase is that clearly delineated PR lower transactions costs and enable resources to flow to their most valued uses.

    In simplest terms, when two parties are arguing over resource use, the court grants a PR to one of them thereby establishing who’s the buyer and who’s the seller. Before this happens, both think they are sellers. The Cubs think they own the right to their games at Wrigley and anyone who sees the game without paying them is stealing. The rooftop folks are like, “Gimme a break. I am on my rooftop and looking out. I own the rooftop and I can look out.”

    I like the example because it’s just like the cases Coase chose in his article. He purposely picked cases (e.g., Sturges v Bridgman, Cooke v Forbes) where it is hard to identify a wrongdoer.

    So, I’d tell the Cubbies, “Take ’em to court” and have the judge rule. Coase tells us that the judge will invent some rationale for declaring a winner, but that’s kabuki theater. Remember the line to the effect that “the doctrine of lost grant is as relevant as the color of the judge’s eyes.” The key is that the judge must pick a winner. That will establish ownership, thus greatly lowering TC and enabling welfare maximizing trading.

    “But why hasn’t this happened? Why do we still have the externality?” That’s another lesson from Coase: not all externalities are worth internalizing . . .

    Thanks for a nice examaple — I’m guessing it will make it to my Law and Econ class this fall . . .

  • 6. Jongwook Kim  |  14 August 2009 at 11:29 am

    Of course, in light of recent events, the judge would rule that watching from rooftops would not be such a bad idea. That way, inebriated Cub fans cannot toss their beer on opposing team players, thus preventing the waste of perfectly good beer!

  • 7. Peter Klein  |  14 August 2009 at 3:19 pm

    Like the inebriated fans that brawled a couple of rows in front of us?

  • 8. Cliff Grammich  |  15 August 2009 at 10:00 am

    “perfectly good beer?” Huh? Haven’t you heard? Anheuser-Busch is the official brewer (so-called) of Major League Baseball. (Ducking for cover . . .)

    Yes, more difficult to throw beer (good or otherwise), or other objects, on the field from the rooftops. But then the rooftops don’t have baskets to keep inebriated fans from falling onto the field or street. . .

  • 9. Jongwook Kim  |  15 August 2009 at 9:03 pm

    I agree, Cliff. My beer of choice is definitely not Bud (give me a Heineken anytime), but that doesn’t change the fact that throwing beer away seems just plain wasteful if the alternative is to drink it; even “not-so-good” beer.

    On a related topic, I agree that it seems that MLB trying to control access would be wrong-headed even if a judge were to rule that they do indeed have the right to exclude rooftop viewers from access. Setting aside bad p.r., etc. for a second, MLB should be trying to maximize the number of viewers in the long run by making games more accessible. For instance, getting young children to come to the ballpark by making it more family-friendly (not so much beer?), scheduling games earlier, speeding up the game, lower prices, etc.

    Perhaps a Coasean bargaining process that involves key relevant parties should reveal the value of providing more access.

  • 10. Cliff Grammich  |  17 August 2009 at 5:57 pm

    Oh, I agree it’s not good even to waste Bud. But when I get a chance to buy a beer for all the O&M folks who have taught me so much over the life of this blog, rest assured, you’re getting something better than a Bud!

    That’s a very interesting point about maximizing the number of viewers. Until TribCo bought the Cubs, the White Sox often outdrew them. While I think the “synergy” I referenced above between TribCo’s team, newspaper, radio station, and television station did much to reverse this, there’s something else to be mentioned as well: the Cubs having nothing but day games at home until just 20 years ago. (Even now, as noted, the number of night games the Cubs can play at home is limited by the city). Result: a generation or two of youth growing up watching the Cubs on TV during the day and becoming Cubs fans.

    It’s probably also worth nothing here that Sox Park in the late ’70s had quite the “saloon” rep that Wrigley didn’t have. That’s something the Sox perhaps haven’t shaken to this day, despite a new park and some amenities for kids (e.g., a section for youths to work on baseball skills), in part because of some unfortunate incidents a few years ago. Yet with Wrigleyville gaining the rep of an adult Disneyland, and with increasingly high prices on both sides of town and, indeed, around the leagues, I do wonder where the next generation of fans is coming from (yes, even given increases in attendance in recent decades!).

    A bit of a digression, I know, except to note the possible irony of TribCo possibly working against some things that helped build the market dominance of its team . . .

  • […] can be approached from a variety of perspectives including strategic factor market theory, Coasean bargaining, or first mover advantages. Of course, there is a humorous side to all of this. SNL has captured […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

Guests

Former Guests | posts

Networking

Recent Posts

Recent Comments

Categories

Feeds

Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).