A Cautious Defense of Intellectual Oligopoly With Fringe Competition

Abstract

In a 2008 paper, Michele Boldrin and David Levine offer a strong attack on intellectual property. While Boldrin and Levine make a plausible case, it is an exaggeration to say as they do that patents and copyrights are intellectual monopolies and are not necessary to encourage invention or creation. More significant is their claim that competition, not monopoly, drives innovation. Boldrin and Levine overstate the case for competitive innovation and understate the case for innovation driven by either market power or the prospect of acquiring market power through patent innovation. They are correct that we will get some innovation in many industries, and even the same level of innovation in some industries, without IP protection. But for most types of invention and creation we just can’t be confident that IP isn’t driving at least some innovation. On balance, IP protection will give us more benefit in the industries in which it spurs competitive innovation and fringe competition than the harm it causes in raising prices and constraining downstream innovation. It is, as Mike Scherer puts it, “a system that, despite its manifest imperfections, has worked tolerably well.” Nonetheless, Boldrin and Levine do point the way toward needed reforms of the IP system short of its abolition.