How intellectual monopolies are barriers to entry that stifle business and trade

by Rudd-O published 2009/05/28 07:09:36 GMT+0, last modified 2013-06-26T03:24:23+00:00
Many people claim that patents and copyrights are not barriers of entry to the market. That's wrong.

I get pro-patent arguments like this all the time:

A patent isn't a barrier to entry into a market, it is a limited monopoly on a particular invention.  Anyone may still compete in a market, just not by using patented inventions without permission. They are completely free to invent other inventions, or to use existing inventions that are not patented, or to negotiate for use of the patented invention with the patent owner.

This argument is in error.  Specifically, it is an equivocation on what a market is, and another on what constitutes a barrier to entry.

Once the market for, say, toasters has been patent-encumbered, there is a barrier to entry in the toasters market in the form of patent licensing that must be paid to the first mover. Inventing a new non-toaster to sell, paying the license fee for the toaster patent, or not entering the market at all, does not mean that the barrier of entry to the toaster market does not exist, it merely means that you are either circumventing or enduring the barrier of entry that is the patent for the toaster.

In othr words: if there is a patent on toasters, fewer people will enter the market of toasters, for a host of reasons caused by the patent, end of story. That is the definition of -- what constitutes -- a barrier of entry.

More concretely, let's get an example from the software business:

There is a market for office automation suites, and in that market there are sub-markets, and one of them is the Microsoft Office market. Since MSO is patent-encumbered and forbidden from being copied, the way that these barriers of entry to the MSO market manifest themselves is in the higher price and sole supplier of MSO. That is one of the effects of a barrier.

And, of course, you can see how the same argument applies to copyrights as well.

So, whomever you ever see claiming that patents are not barriers to entry into a market... slap him in the forehead and show this to him.