Against Intellectual Monopoly

reverse engineer. Moreover, the expertise that comes with being the
innovator, and having been in production for longer than competitors,
has substantial market value. The example of Boulton and Watt after the
expiration of their patents is a case in point, but there are many others, such
as the fact that patented drugs continue to command a substantial premium
over their generic competitors, even long after the patent expires. In short,
even without the benefit of legal protection, the innovator certainly will
enjoy a short-term monopoly and can depend on such forces as reputation
and consumer loyalty working to her advantage.
    But how is the poor inventor, working in his basement, to profit against
the large heartless corporations? Will they not take advantage of his lack
of capital to steal his idea and put it into production themselves? Here
we appeal to the clever scheme, explained by Anton and Yao in an article
in the American Economic Review,'2 showing how the inventor can avoid this. To return to the example of the Ginger/Segway scooter, Mr. Kamen
could have gone to one of the automobile companies, Ford, perhaps, and
shown them his blueprint for free. He would then promise to keep it secret
from their competitors, but only in exchange for a substantial share in Ford
Motor Company. This creates what an economist would call an incentivecompatible mechanism, and what a pundit would call a win-win situation.
The secret would have substantial value, as Ford would enjoy a first-mover
advantage. As long as Mr. Kamen asked for less than the full value of the
invention to Ford, Ford would be happy to pay, for if he were to reveal the
secret to its competitors, Ford would lose its monopoly profits. On the other
hand, Ford would understand that Mr. Kamen, sharing in the Ford stock,
would not reveal the secret to the other companies - as this would reduce
the value of his stock. Let us note, in passing, that this argument reveals that
competition is double good for both society and inventors. First is for the
reason exposed previously. Second is because Mr. Kamen's threat to Ford
is credible if, and only if, there is at least one competitor to Ford in the
production of cars. Absent competition in the production of cars, the genial
innovator would have much less bargaining power with the only producer of
cars. Hence, the moral: make sure to enforce competition, among innovators
but also among not-so-innovative producers of old goods, such as cars -
and shoes.

Quantifying the First-Mover Advantage
    How strong the first-mover advantage is depends on whether profits are
earned from venues in which duplication is difficult or venues in which
profits can be earned quickly. When the first-mover advantage is strong,
the economic rationale for protection is weak, because most worthwhile
works will be produced in the absence of intellectual monopoly. Lobbyists
from the book industry, such as the Authors Guild, the RIAA, speaking for
the recording industry, and the MPAA, speaking for the movie industry,
have been quite adamant about the need for protection of their intellectual
property. So, it is worth taking a look at how strong the first-mover advantage
is in these industries.
    In the case of movies, prior to the advent of the VCR in the mid-1970s,
the bulk of film revenue was from theatrical performances, with a small
portion coming from television reruns. The bulk of profits are earned in
initial theatrical releases, which typically last for several weeks to a month.
Following the first-run theatrical release, there is a second run that begins
one to two months after the end of the first. The striking feature about
the second run is that ticket prices are typically much lower than for the first run. For example, in 2002, in Chicago, examining ticket prices on the
Internet, we found that the typical first-run ticket cost $9, and the typical
second-run ticket cost about $3. This high degree of impatience on the part
of moviegoers is precisely the type of environment in which the case for
intellectual monopoly is weak - especially because theatrical performances
certainly are bounded by capacity (theatrical seat capacity, in this case) even
in the absence of copyright.

    We can also estimate the willingness to pay for earlier delivery through the
examination of express delivery charges. On October 1, 2002, Amazon.com,
for example, charged $0.99 per book delivered in three to