Against Intellectual Monopoly

breeders' market was not distorted, one would
expect breeders to make an average profit in line with that of other, similarly
risky, lines of business.
    The average-profit aspect of our argument is often missed by people who
are not familiar with economic reasoning, leading to an understandable,
but incorrect, criticism of the theory of competitive innovation. Here is an
"offspring of the great stallion" version of it:
    The Boldrin-Levine paper makes a similar argument about copies of creative works.
They suggest that because the first people to buy a creative work will capture value
from copying that work, what they will pay for the first copy will be very high.
Thus, copyright is not necessary. The owners of Seabiscuit did not need a copyright
in order to capture the breeding value of their horse. If Seabiscuit, the horse, does
not need a copyright, why do we need a copyright for Seabiscuit the book? My
guess is that the publisher, Ballantine Books, could not be sure ahead of time
whether Seabiscuit would be a winner or an also-ran. The book was available to
be copied before this uncertainty was resolved. Without copy protection, another
publisher could wait for Ballantine's full line-up of books to come out, observe
how they sell, and then choose to copy only the popular titles. In contrast, the
owner of the horse could wait until the quality of the horse was established before
making the horse available to others to make copies. I can see how the BoldrinLevine mechanism works for horses, but I have a hard time seeing it work for
books.4
    Observe, though, that waiting until Ballantine has saturated the market with
its copies of Seabiscuitthe book before producing your own cheap imitation
is a business strategy that will fill Ballantine's coffers with money and not
yours. We will discuss this point in greater detail in the section "Ideas of Uncertain Value" later in this chapter. However, we observe that even the
copyright protection that made him a multimillionaire seems unable to
keep Mr. Costner from also producing monumental flops every few years
or so.

    Most critics, in any case, miss the fact that it is an empirical and not a
theoretical issue to figure out whether the share of social surplus accruing
to an innovator under competition covers his opportunity cost. Theory,
per se, does not guarantee that the share of social value accruing to the
holder of a patent will be enough to cover his cost of innovation either. Both
mechanisms, the competitive and the monopolistic, allow the innovators to
capture a share of the social surplus, which may be larger or smaller than
the cost of innovating. The share accruing through the second mechanism
is generally larger than the one through the first, but monopoly achieves it
by introducing the unwelcome evils documented in Chapters 4 and 5. Such
evils should and will be weighed against the extra innovation monopoly
brings about in Chapters 8 and 9. In this and the next chapter, we stick
to theoretical matters because critics appear to be forgetful of the way
competitive industries work. Our first concern is the channels through
which competitive innovators capture a share of social surplus, thereby
earning positive rents, when a fixed cost is present.
Fixed Costs and Competition
    The mythical inventor spends lots of time and resources to come up with a
new product, a different way of doing things, a novel organizational form,
or whatnot. Once the invention is completed, reproducing copies of it is
a routine task that anybody can perform at low cost. Leave aside the fact
that this mythical description probably applies to no more than a tiny
fraction of innovations - that most of the useful things surrounding us are
not the product of some great leap forward due to the imagination of a
Promethean genius but are, instead, the outcome of a string of humble and
mostly overlooked incremental improvements carried out by thousands of
very normal human beings. In the mythical case, competition will force the
invention to trade at the very low cost of reproduction, leaving the inventor
with no compensation for the very high initial cost of invention. This has led
many to believe that innovations are unbefitting of trading in competitive
markets.
    This is a powerful argument, so powerful, in fact, that it ought to apply to
all industries. Take, for example, the shoe industry. A factory that produces
shoes is expensive. Once the