Against Intellectual Monopoly

property:
they should not be taken away without permission, and the owner should
have the legal right to sell them. However, intellectual property in the form
of patents and copyrights is not about property rights in this sense. It is
about the right to control other people's copies of ideas and by doing so
establish a legal monopoly over all copies of an idea. Because it makes this
fact transparent, we prefer the term intellectual monopoly to the usual term
intellectual property.

Economic Arguments for Intellectual Monopoly
    Economists - ourselves included - think that it is important that the creators
of ideas be compensated for their effort in adding to our stock of knowledge.8
Although the economics literature generally acknowledges that intellectual
property leads to undesirable intellectual monopoly, it also argues that
this might be a good thing - because creators of new ideas may not be
adequately compensated otherwise, and this is one way to provide additional
compensation. As Joseph Schumpeter, in the words of Jean Tirole, puts it, "If
one wants to induce firms to undertake R&D one must accept the creation
of monopolies as a necessary evil."9 This view is as commonly held among
economists today as it was in the past. In their recent textbook, Robert Barro
and Xavier Sala-i-Martin argue:
    In order to motivate research, successful innovators have to be compensated in
some manner. The basic problem is that the creation of a new idea or design ... is
costly.... It would be efficient ex post to make the existing discoveries freely available
to all producers, but this practice fails to provide the ex ante incentives for further
inventions. A tradeoff arises ... between restrictions on the use of existing ideas and
the rewards to inventive activity.10
Fixed Cost and Constant Marginal Cost
    The economic argument, then, for intellectual monopoly is that without it
there will not be incentives to produce ideas. The traditional logic is one of
fixed cost and constant marginal cost. The cost of innovation is a fixed cost -
ideas are expensive to produce. Once discovered, ideas are distributed at a
constant marginal cost. As we learn in Econ 101, perfect competition forces
prices to marginal cost, so profits are forced to zero. This means that the
fixed cost of producing the idea cannot be recouped. Consequently, without
intellectual monopoly, there will be no innovation.
    The idea that monopoly is necessary for innovation forms the foundation
for a wide variety of economic models, ranging from general equilibrium
models of monopolistic competition to micromodels of patents and patent
races. The original theoretical argument was sketched by Allyn Young before
the Second World War and developed in greater detail by Joseph Schumpeter
during the war. The first formal treatment of the idea that competitive
markets are intrinsically incapable of handling innovations can be found in
writings by Kenneth Arrow and subsequently Karl Shell, published in the
early and middle 1960s. In the second half of the 1980s, Robert Lucas, Paul
Romer, and many followers used new analytical instruments to apply this point of view to the problem of economic development, creating a theory
now known as the new growth theory.

    Leaving aside the, possibly too theoretical, observation that the logical
argument works only if the marginal cost is truly constant and fails in
the more generally accepted case in which it is increasing, the fixed cost
plus constant marginal cost argument fails along two more substantive
dimensions. First, as a matter of theory, perfect competition forces goods to
be priced at marginal cost only in the absence of capacity constraints - and,
as we just argued at length, the rents generated by capacity constraints along
with other first-mover advantages can and do lead to thriving innovation.
Pricing at marginal cost is a prediction for the long run, which applies
only once capacity constraints are no longer binding. Erecting a theory
of economic growth on the flimsy assumption that productive capacity
always builds costlessly and instantaneously seems like a risky proposition,
at least in a world where scarcity still reigns supreme. Second, as a practical
matter, in most industries and for most innovations the short run is what
matters to make money; when the long run comes, your innovation has
probably already given way to an even newer one. Focusing the attention
of