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Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.





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Why the Movie Glut?

Today's Wall Street Journal has a front page article, "Glut of Flilms Hits Hollywood", about why so many money losing movies have been made lately. Donald Starr, chairman of Grosvenor Park, a film financing company, says: "The amount of sales that these films generate is just too small to be worth it. In any other business, if something doesn't make back its price, you stop making it. But for some reason in the film industry we keep making more of these movies."

The reason Mr. Starr is searching for was identified by the economist Arnold Plant in a classic 1934 article on "The Economic Aspects of Copyright in Books." He pointed out that the copyright regime has the perverse consequence of over stimulating the production of books people don't want to read. Publishers use the monopoly profits earned from successful books to fund the production of their duds. The same thing is true for any other part of the copyright industry, including films. An excess of small indie films get made, which don't earn their opportunity cost of capital. The other side of the ledger is that a small number of films (e.g., Titanic) and film stars (hello Leonardo Di Caprio), and books (e.g., the Harry Potter series) and authors (hello J.K. Rowling) earn far more than they would in a free market.

Julio Cole wrote an article on copyright discussing Plant's work "Controversy: Would the Absence of Copyright Laws Significantly Affect the Quality and Quantity of Literary Output?"

The solution is to abolish the copyright raj. Hey, maybe that would play in Bollywood.


Comments

William:

You made a very interesting statement. You said:

The other side of the ledger is that a small number of films (e.g., Titanic) and film stars (hello Leonardo Di Caprio), and books (e.g., the Harry Potter series) and authors (hello J.K. Rowling) earn far more than they would in a free market.

If someone produces a movie, say for instance, "Harry Potter and the Goblet of Fire," and puts that movie into a theater, why is the market not free? Consumers have several choices. They can (1) Not see the movie at all. (2) See another movie. (3) See that movie. No one holds anyone hostage or forces them to either see or not see a movie.

What is the definition of a "free market"? To quote Murray Rothbard, "The Concise Encyclopedia of Economics": A free market is a market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers. By definition, in a free market environment buyers and sellers do not coerce each other, in the sense that they obtain each other's property without the use of physical force, threat of physical force, or fraud, nor is the transfer coerced by a third party.

I fail to see anywhere in this definition that anyone has an expectation of watching the movie "Harry Potter and the Goblet of Fire" for free, or being able to make unlimited copies of this movie for free distribution to their friends. If you do not want to pay to watch "Harry Potter and the Goblet of Fire," wait until it is available on television or watch another movie altogether. You have freedom of choice within the constraints of your finances, which would appear to be an inalienable right in our society.

Let's say we assign one company a monopoly over bread. Would this be a free market?

Just the fact that assigning a monopoly in "harry potter and the goblet of fire" isn't the same disaster that assigning a monopoly in bread would be doesn't make it a free market.

Kid:

I borrow a definition of monopoly from Milton Friedman, one of the most respected economists of all time (though other definitions of monopoly are similar): A monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

The product in this case is a movie. Do the owners of the movie "Harry Potter and the Goblet of Fire" have a monopoly on movies? Of course not. Indeed, the movie "Harry Potter and the Goblet of Fire" is but one of many choices of movies. There is no legal definition of monopoly that would permit you or anyone else from preventing the owners of the movie "Harry Potter and the Goblet of Fire" from maintaining control over this single item in the category of product called "movie." Indeed, what benefit does society gain from allowing people to steal copies of the movie "Harry Potter and the Goblet of Fire"? On the other hand, if people are permitted to steal movies, then what prevents them from shoplifting and any other form of stealing?

Are there monopolies in the world? A few, but not many. We have laws against monopolies. Are there tests for monopolies? Yes, the best test is that there are no real alternatives. Of course there are real alternatives to the movie "Harry Potter and the Goblet of Fire." For starters, there are the thousands of movies previously produced and available in the market place, along with all the current movies in the theaters. Just because you want that particular movie does not make that movie a monopoly, it just makes the movie one version of a product you want.

Another test is price. Is the owner of "Harry Potter and the Goblet of Fire" able to control prices of movies because of the ownership of that particular movie? No. Competition from other movies and other forms of entertainment keep the prices somewhat in check, based on demand.

Your example of "bread" is a great example. "Wonder" bread is produced by one company. However, that company faces competition from numerous other companies. Just because you are unable to purchase "Wonder" bread at the same price as store brand bread from Wal-Mart does not mean that the makers of "Wonder" bread have a monopoly over bread, it just means they control one formula of bread and they will market and sell that bread according to their goals and desires - since they own the property, as does Coca Cola, Pepsi and all the other companies of the world that make competing products. That does not make Coca Cola, Pepsi, Levis or anyone else a monopoly, only producers of one variety of various types of products.

Lonnie,

Copyright, pace Rothbard, is inconsistent with a free market. A free market is the ability to exchange property titles unimpeded by violence, including that wielded by the State. (The State is an organization that maintains a legalized monopoly of coercive force over an arbitrarily circumscribed geographical area, and which gains its revenue by theft, primarily in the forms of taxation and inflation. Max Weber forgot about the last part in his classic definition of the State, but Franz Oppenheimer didn't.) So called "intellectual property"--patents and copyrights for starters--is a government grant of monopoly or coercive privilege that gives the rights holder in question the legalized "right" to prevent other property rights owners from using their own property in certain ways, such as making copies of books and movies, with or without the attendant sale of these things. The monopoly formerly known as intellectual property was never part of the common law, but was always and everywhere imposed by legislative diktat. As Fritz Machlup and Edith T. Penrose pointed out in their paper on the 19th- century patent regime, the gussied up term "intellectual property" was invented out of whole cloth by the criminal gang known as the French legislature (okay, they didn't call it a criminal gang, but it was) to cover up the fact that the patent regime was exactly that--a government-imposed system that granted monopolies to inventors.

There is no reason why the author and producers of the Harry Potter books and movies would not profit from the sale of these products absent the copyright system. If someone acquires a justly owned copy of either of these, he has a right to copy them and to dispose of them by sale (including giving them away). This is not theft or piracy, as you seem to think. If anyone is a thief or a pirate, it's a copyright holder.

As for the definition of monopoly, Murray Rothbard had a much better understanding of it, in my view, than Milton Friedman did. Ironically, Rothbard was against patents, which Friedman was for (see Capitalism and Freedom); yet Rothbard was for copyright, while Friedman at least signed the economists' brief supporting Eldred in his SCOTUS case.

I would recommend you read the books by Kinsella and Boldrin and Levine, both of which are online and have been linked to at previous posts here. Tom G. Palmer also wrote a couple good articles on "IP," which are available at his home page.

Bill:

Intelligent response.

Any law is at its heart an artificial imposition of structure on natural "rights." Of course, we need this structure or we would run about doing what animals do, which is contrary to how we envision our society.

I have been doing a lot of thinking about the opinions on this site, which seem to me to be socialistic or communistic in their intent. However, I also find it interesting that China (along with South Korea, Hong Kong and other Asian countries that have historically had NO or minimal intellectual property rights - perhaps ideal from the point of view on this web site), one of the few nominally communist countries remaining on earth, has stated that strong IP is necessary to support internal (note I said internal, not international), innovation. If having no intellectual property is such a huge advantage, why are countries that have had no IP in modern times adopting it?

Lonnie,

Common law (at least until it became bastardized) was the legal counterpart of natural rights, as Rothbard pointed out in The Ethics of Liberty. So there is no tension or contradiction between law and natural rights, both being rightly understood. Far from being socialistic or communistic, the opinions on this site have all been consistent with liberty and natural rights. As for the Asian countries you mention and their record on the monopoly formerly known as intellectual property (you might also have included Russia), they have been far less communistic than countries in the West. A few weeks ago, a high falutin' Chinese minister of Social Something had an op-ed in the Wall Street Journal saying how China was going to be more respectful of "intellectual property" going forward. He was just being a good commie in that article, saying how great government monopolies were, and no doubt acting as a PR stooge for the Chinese state in its bid to curry favor with the West leading up to the Beijing Olympics.

Bill:

China has been working on stepping up enforcement of IP for a number of years. Currently their winner is with respect to trademarks. They have special courts set up and they are quite vigourous in their protection of trademarks, most specifically their own, of course. However, the recent Chinese protection of IP has little to do with the Olympics and only a little to do with outside pressure. The Chinese have (finally) discovered that IP protection works both ways. While the "west" may have invented IP, it protects Chinese companies just like it does western companies.

Incidentally, the champion country for IP expertise and strategy remains Japan, who quickly realized that IP was one of their most powerful weapons in gaining a stronghold in western markets. Indeed, western countries were for a long time underusers of IP until the Japanese showed us how we could use our own system (which they have also adopted, though their have even more constraints that foes of patents would dislike).

It depends what you mean by protection. Monopolies are protection all right, and so are tariffs. Does that make countries sporting high tariffs champions of the welfare of their citizen-serfs? The best way for governments to support innovation would be to abolish their own intellectual monopolies and not to enforce those of other states. Then a real free market would flourish as patent trolls and the copyright industry withered and died.
Bill:

Ah, if it were but true. I suspect that the abolishment of intellectual property would merely create whole new security industries whose only goal was to figure out how to protect intellectual property from being copied. So, we would go back to the way things were before intellectual property existed. Only a few copies of any book would be printed. Authors would have disincentives for writing books and Ray Bradbury's concerns that print media (even electronic print media) might completely die some day would finally come true. Of course, crappy amateur authors would flourish!

Technology is a whole other matter. Suddenly companies would spend fortunes on trying to figure out how to keep their mechanisms from being reverse engineered. The prices of new technology would go higher as companies invested more money in secrecy and the protection of technology. Some new technologies might be held by one clever company for decades - kind of like what happened before patents existed.

Companies can be very powerful creatures. Patents are merely a relatively cheap form of protection. Take that protection away and companies will just find better ways to protect themselves. I suspect that they will invent techniques that keep technology from being disseminated until they decide to allow it to be; a kind of private police state where only limited people have access to new technology.

Lonnie,

Your argument is completely backwards. We have a small industry trying to prevent "IP" from being copied in the form of DRM (ditital rights management) and encryption. All of this is trying to shore up an existing intellectual monopoly regime. Then there is the DMCA (Digital Millennium Copyright Act).

The open source movement, which you seem to be unaware of, refutes your point about technology. Intellectual monopoly, like all monopolies, restricts the supply of the thing monopolized to only those entities that own the rights in question. You are right that companies have better ways to protect themselves, such as trade secrecy. Even better is for them to continue to out innovate their rivals. Coca-Cola didn't need to patent the formula for its flagship product, but it did need to keep innovating to stay ahead of its competitors. It earned back its cost of capital that went into coca-cola decades ago, so it had to find new markets and to make new products to fend off Pepsi and other soft drink firms.

Your point about the police state is ironic considering that the police enforce intellectual monopoly and have put some "pirates" behind bars, including a computer scientist in China. Getting rid of the monopoly formerly known as intellectual property would be a small blow against the police state, if not its death knell.

To reiterate what I said before, you should familiarize yourself with the arguments against "IP" in the works of Kinsella and Boldrin and Levine.

Bill:

I am aware of the open source movement. However, software is but one small part of technology. There are dozens of technologies using dozens of methodologies. Many of these technologies have their own idiosyncracies. The lack of open source has been one of the more remarkable protections of IP, one that requires no government protection at all. That makes some of the comments on this web site interesting with respect to IP, since there is so much focus on patents, copyrights and trademarks, and yet certain software companies have managed to keep their software secret because they have not used copyright or patents to protect it. It seems preferable for society at large that these companies protect their software with a copyright or with a patent just so that the code would be available, but of course the companies that have so protected their software are happier with the present arrangement.

However, when I made my comments above, I was not thinking about software, but hardware. I can think of many ways to protect processes and hardware that companies do not bother to use because patent protection is available and the other methods of protection require adding unnecessary cost to a device. My point is that if IP protection is removed, then an innovative company will do anything it can to slow the transfer of the technology behind a device to the world at large to maintain its competitive advantage as long as possible. If a company has a key technology and is able to keep their technology secret successfully, they may well be able to do what England did to the textile industry for decades and prevent competition and innovation. You may think that we are smarter and better now than we were when England held its monopoly, and you may be right, but companies would likely spend significant effort to protect their innovations without IP if they had to.

As for police enforcement of IP, in most countries IP is enforced through the courts. True, there are limited arrests for a variety of reasons even in the west, but the vast majority of enforcement is much more benign than a bunch of police with drawn guns invading someone's home or business.

I have copies of Kinsella and Levine's works for later perusal (I have other things I must do right now). I am looking forward in particular to reading Kinsella's writings on the subject. I am currently unfamiliar with Boldrin.


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