Cambridge University Press 978-0-521-87928-6 - Against Intellectual Monopoly Michele Boldrin and David K. Levine Frontmatter More information AGAINST INTELLECTUAL MONOPOLY “Intellectual property” – patents and copyrights – has become controversial. We witness teenagers being sued for “pirating” music, and we observe AIDS patients in Africa dying because of their lack of ability to pay for drugs that are expensively priced by patent holders. Are patents and copyrights essential to thriving creation and innovation? Do we need them so that we all may enjoy fine music and good health? Across time and space the resounding answer is: No. So-called intellectual property is in fact an “intellectual monopoly” that hinders rather than helps the competitive free market regime that has delivered wealth and innovation to our doorsteps. This book broadly covers both copyrights and patents and is designed for a general audience, with its focus on everyday examples. The authors conclude that the only sensible policy to follow is to eliminate the patent and copyright systems as they currently exist. Michele Boldrin is Joseph G. Hoyt Distinguished Professor of Economics in Arts and Sciences at Washington University in St. Louis. He is a Fellow of the Econometric Society and a Research Fellow at the Center for Economic Pol- icy Research (London) and at Fundacion´ de Estudios de Econom´ıa Aplicada (Madrid). He is an associate editor of Econometrica, an editor of Review of Economic Dynamics, and an advisory editor of Macroeconomic Dynamics,pub- lished by Cambridge University Press. His research interests include growth, innovation, and business cycles; intergenerational and demographic issues; public policy; institutions; and social norms. He is the coauthor or coeditor of four books and has published in leading journals such as American Economic Review, Econometrica, Review of Economic Studies, Journal of Political Economy, Journal of Economic Theory, Review of Economic Dynamics, Journal of Monetary Economics,andJournal of Economic Dynamics and Control. David K. Levine is John H. Biggs Distinguished Professor of Economics in Arts and Sciences at Washington University in St. Louis. He is a coeditor of Econo- metrica and NAJ Economics, president of the Society for Economic Dynamics, a Fellow of the Econometric Society, and a research associate of the National Bureau for Economic Research. Author with Drew Fudenberg of Learning in Games and editor of several conference volumes, his research interests include the study of intellectual property and endogenous growth in dynamic general equilibrium models; the endogenous formation of preferences, institutions, and social norms; and the application of game theory to experimental economics. Levine has published in leading journals such as American Economic Review, Econometrica, Review of Economic Studies, Journal of Political Economy, Jour- nal of Economic Theory, Quarterly Journal of Economics,andAmerican Political Science Review. © Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-87928-6 - Against Intellectual Monopoly Michele Boldrin and David K. Levine Frontmatter More information Against Intellectual Monopoly MICHELE BOLDRIN Washington University in St. Louis DAVIDK.LEVINE Washington University in St. Louis © Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-87928-6 - Against Intellectual Monopoly Michele Boldrin and David K. Levine Frontmatter More information cambridge university press Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao˜ Paulo, Delhi Cambridge University Press 32 Avenue of the Americas, New York, NY 10013-2473, USA www.cambridge.org Information on this title: www.cambridge.org/9780521879286 c Michele Boldrin and David K. Levine 2008 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2008 Printed in the United States of America A catalog record for this publication is available from the British Library. Library of Congress Cataloging in Publication Data Boldrin, Michele, 1956– Against intellectual monopoly / Michele Boldrin, David K. Levine. p. cm. Includes bibliographical references and index. ISBN 978-0-521-87928-6 (hardback) 1. Intellectual property – Economic aspects. 2. Competition. 3. Monopolies. I. Levine, David K. II. Title. K1401.BB65 2008 346.048–dc22 2007053007 ISBN 978-0-521-87928-6 hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party Internet Web sites referred to in this publication and does not guarantee that any content on such Web sites is, or will remain, accurate or appropriate. © Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-87928-6 - Against Intellectual Monopoly Michele Boldrin and David K. Levine Frontmatter More information Contents Acknowledgments page vii 1. Introduction 1 2. Creation under Competition 15 3. Innovation under Competition 42 4. The Evil of Intellectual Monopoly 68 5. The Devil in Disney 97 6. How Competition Works 123 7. Defenses of Intellectual Monopoly 149 8. Does Intellectual Monopoly Increase Innovation? 184 9. The Pharmaceutical Industry 212 10. The Bad, the Good, and the Ugly 243 References 271 Index 287 v © Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-87928-6 - Against Intellectual Monopoly Michele Boldrin and David K. Levine Frontmatter More information Acknowledgments Above all we are grateful to our families, Emanuela and Niccolo,` Joyce, and Milena, for putting up with us while we wrote this – not to speak of reading and criticizing parts of it. A great many people contributed to our ideas and knowledge of “intel- lectual property” expressed in this book – though many of them no doubt would disagree with our sentiments and some of our conclusions. We are particularly grateful to Nicholas Gruen, Doug Clement, Jim Schmitz, Tim Sullivan, and Scott Parris for their continued support and advice. Toward Scott Parris, our editor at Cambridge University Press, we have accumulated a particularly large debt for his infinite patience, careful reading of an end- less sequence of versions, and very professional handling of our repeated mishaps. Many people advised us about particular issues. We are grateful for Pres- ton McAfee’s analysis of the Rambus case; Alessandro Nuvolari’s advice, especially about steam power; Ivan P’ng’s example of the wheeled suit- case; Eric Rasumussen’s analysis of marketing and copyright; Jean-Laurent Rosenthal’s leads on the history of copyright; and George Selgin and John Turner’s corrections to our story of James Watt. Many people contributed examples, comments, and references, especially Serguey Braguinski, Tim Erickson, Jack Hirshleifer, Bronwyn Hall, Andrea Moro, G. Moschini, Ed Prescott, Paul Seabright, Malik Shukayev, Robert Solow, William Stepp, Stefano Trento, and Edward Welbourne. We learned an immense amount from our fellow bloggers at http:// www.againstmonopoly.org: John Bennett, Andrea Moro, Michael Perelman, Sheldon Richman, and William Stepp. We are grateful also to the Slashdot Web site (http://slashdot.org) and its many contributors for a set of detailed comments on an early version of some of the chapters. Many other people contributed thoughts, ideas, examples, vii © Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-87928-6 - Against Intellectual Monopoly Michele Boldrin and David K. Levine Frontmatter More information viii Acknowledgments and discussion: Larry Ausubel, David Backus, Kyle Bagwell, Sandip Baliga, Gary Becker, Robert Becker, James Bessen, William Brock, Andres Bucio, Jorge Capapey, V. V. Chari, Pierre-Andre Chiappori, Eddie Dekel, Drew Fudenberg, John Gallup, Richard Gilbert, Mike Golosov, Clara Graziano, Dan Hite, Hugo Hopenhayn, Chad Jones, Larry E. Jones, Boyan Jovanovic, Nobu Kiyotaki, Lennart Krantz, Timothy Lee, Jay Lepreau, Bob Lucas, Mike Masnick, Salvatore Modica, Enrico Moretti, Roger Myerson, Paul Romer, Mark Sattherwaite, Rob Shimer, Nancy Stokey, Juan Urrutia Elejalde, Ivan Werning, Freddy Williams, Asher Wolinsky, Curtis Yarvin, and Alejandro Zentn. Our student and research assistant, Fanchang Huang, read the whole manuscript and corrected an endless list of typos, poorly assembled refer- ences, and other kinds of errors. He did a great job and we are most grateful to him. We are likewise grateful to Tenea Johnson, who copyedited the manuscript. We are sure some errors can still be found, and it is all our fault. Earlier in the project, Chinese University of Hong Kong and the Univer- sity of Pennsylvania IER/Laurence Klein Lecture provided opportunities to present our work to broad audiences, and for this and the many comments that resulted we are grateful. A great many attendees at conferences and seminars listened patiently to variations on our analysis: the economic departments of Arizona State University, Beijing University, European University Institute, Florence, New York University, Oxford University, Purdue University, SUNY Buffalo, Uni- versity of California, Los Angeles, Universidad Autonoma,´ Madrid, Venice International University, University of Wisconsin–Madison, and Wuhan University; theory and/or macroeconomics workshops at Brown University, Carlos III, City University of Hong Kong, Columbia University,