Against Intellectual Monopoly

rent that matters. If, indeed, the Internet is reducing competitive rents,
bear in mind that the same computer technology is reducing the cost of
producing copyrightable creations. Take music, for example. Music-editing
capabilities that required millions of dollars of studio equipment ten years
ago now require an investment in computer equipment of thousands of
dollars. And long before the Internet swamps the markets with music and
movies, authors will be able to create movies on their home computers with
no greater difficulty than writing a book - and entirely without the assistance of actors, cinematographers, and all the other people who contribute
to the high cost of moviemaking.36

    Moreover, improving transmission and reproduction technology may
increase, rather than decrease, competitive rents earned by the innovator.
Simply put, the creator of the idea in competitive equilibrium can claim
the present value of a share of all revenue generated by the idea. Whether
price falling to zero implies revenue falling to zero depends on the elasticity
of demand; the mathematics of infinity times zero is complicated at times
and this is one of them. If, in fact, demand is elastic, then price falling to
zero implies revenue increasing to infinity (because so many more units are
sold). So, in this case, improved reproduction technology would increase
rather than decrease the rents accruing to the competitive innovator.
The Global Economy
    One often finds the argument that the increasingly freer trade, the growth
of many Asian economies, and the lowering of transportation costs are
creating a dangerous mix for our economic stability. In particular, it is
argued, our ideas and products are increasingly being unrightfully copied,
and this requires some kind of serious intervention by our governments.
In other words, globalization is risky for our innovators, and we need to
strengthen intellectual property protection and force emerging countries to
do the same things we do. Free markets and free trade, we are lectured,
are becoming a threat to our economic well-being, and Adam Smith's and
David Ricardo's views that competition and comparative advantages will
make all of us better off are too naive to be believed, and certainly not
applicable to this complex and globalized economy.
    In fact, as the economy expands, Smith and Ricardo, far from becoming
irrelevant, as DeLong and Froomkin assert, become more relevant than ever,
the rationale for intellectual monopoly fades away, and we may look forward
to a future in which we earn our living by trading ideas and creations - but
without the intervention of governmentenforced intellectual monopolies.
As the size of the market expands, both competitive rents and the profit from
first-mover advantage will generally increase proportionally - meaning that
most economically useful ideas will be produced even in the absence of
intellectual monopoly.
    The consequences of increasing market size are discussed extensively in
technical work by the two of us and other researchers. Notice, first, an
important commonsense fact: when the Indian and Chinese markets open
up for, say, music or drugs produced in the United States or the European
Union, no matter how much piracy there is over there, at least some slices of
those markets are going to "legitimate" producers. Before India and China opened to trade, those same producers would have had to field the fixed
costs of their innovations with the proceedings from sales in much smaller
markets. Hence, even if "we" get, say, only 10 percent of the new markets (a
ridiculously low number), that is still a lot more revenue, and hence profits,
than we would have had without globalization. This, by itself, suggests
that the equalization of globalization with the need for stronger intellectual
property laws is just plain and simple rent-seeking propaganda from existing
monopolies.

    There is a second, maybe subtler but certainly not less relevant, argument.
As market size increases, two things happen. More consumers are added for
all those ideas you are already producing or you would have produced in
any case. Let us call these good ideas, because they were good enough to
be profitable even when the market was pretty small. Also, additional ideas
from the new players getting into the game become available. Let us call
these marginal ideas, because if they had been good ideas they would have
been