Patents and smart phones

Here’s a rather long article on patent wars in the software industry especially with regard to smart phones.

The purpose of patent and copyright legislation is to restrict competition and allow some people to make excessive profits.  In this case it appears some of those profits are going to lawyers.

If we didn’t have patent legislation the smart phones would be even smarter and would be less expensive.  Probably a lot of lower-income people would benefit greatly.

I have a theory that genius is 90 per cent plagiarism.  Therefore anyone can be a 90 per cent genius which isn’t bad – except those who don’t listen (or who get caught by patents).

The assumptions economists make

The assumptions economists make is the title of a book published in March of this year and for which a review is located here.  It sounds a little interesting so I have suggested it for purchase by our local library.  I’m not sure it is interesting enough to spend $25 for my own copy.

However, the title reminds me of my own struggles with the assumptions of perfect competition.  So here is a post from almost two years ago about the assumptions of perfect competition and how one could interpret them.

 

Perfect competition utopia

When I started studying economics and learned about perfect competition and its assumptions I thought it was totally unrealistic. I really enjoyed the joke about the economist who wanted to assume he had a can opener.

However, through the years I have come to see perfect competition as an utopia which provides guidelines for policy. I like the perfect competition model because it provides high efficiency, equality in that there are no profits, it works without economic growth and decision making is by individual consumers rather than governments.

One of the features of perfect competition is that there are no profits because if profits are being made in an industry others will enter that industry increasing competition and driving prices down until there are no more profits.

To get around this no profit feature business people lobby governments to pass legislation which restricts competition. For example, subsidies, some taxes, licensing, copyright and patent legislation all interfere with perfect competition.

To make our economy more competitive we should:

– Give subsidies to consumers rather than producers. This way prices will reflect true costs and buyers can make decisions according to their own values.

– Require producers to provide consumers will all relevant information about their products.

– Abolish patent and copyright legislation.

– Unilaterally abolish import and export tariffs.

Following is a summary of the assumptions for perfect competition.

The link for the website from which they were taken is http://tutor2u.net/economics/content/topics/competition/competition.htm

Assumptions behind a Perfectly Competitive Market

1. Many suppliers each with an insignificant share of the market “ this means that each firm is too small relative to the overall market to affect price via a change in its own supply “ each individual firm is assumed to be a price taker

2. An identical output produced by each firm “ in other words, the market supplies homogeneous or standardized products that are perfect substitutes for each other. Consumers perceive the products to be identical

3. Consumers have perfect information about the prices all sellers in the market charge “ so if some firms decide to charge a price higher than the ruling market price, there will be a large substitution effect away from this firm

4. All firms (industry participants and new entrants) are assumed to have equal access to resources (technology, other factor inputs) and improvements in production technologies achieved by one firm can spill-over to all the other suppliers in the market

5. There are assumed to be no barriers to entry & exit of firms in long run “ which means that the market is open to competition from new suppliers “ this affects the long run profits made by each firm in the industry. The long run equilibrium for a perfectly competitive market occurs when the marginal firm makes normal profit only in the long-term

6. No externalities in production and consumption so that there is no divergence between private and social costs and benefits.

How the one per cent got to be rich

This week’s issue of The Economist has an article on the one per cent in the United States.

Here are two reasons why we have very rich people.

First, governments pass legislation which  interferes with the workings of competitive markets.  If markets were perfectly competitive there would be no profits and therefore no rich people.

For example, for there to be perfect competition it has to be easy for new firms to get into any industry and for that they must have knowledge of the technology.  Patent legislation, whatever the merits of intellectual property arguments, restricts competition and allows the patent holder to make profits that otherwise would not be available.

Other examples of legislation that restricts competition are copyright, licensing, regulations and trade restrictions.

Second, the reason bankers become rich is that they create money when they make loans.   This gives them a great deal of power in that they decide what projects go ahead and by whom.  It also provides them with opportunities to take cuts for themselves and they also get to charge interest on the money they have created.

So, if we want a more equal economy we should repeal some of the legislation which restricts competition and we should look for another way to create money.

Challenging patents

This week’s issue of The Economist has a couple of articles and an editorial on patents.

Patents are currently  a motherhood thing in economics.  To challenge them is to commit treason.  Well, here goes.

One of the features of a competitive market is that it be easy for participants to get in (and out)  To do that the technology must be known to all.  Patents work to protect the interests of those already in the market.  If we really wanted a competitive market economy we would retract all patent legislation.

Progress comes from building upon what others have done.  I have read that during the Industrial Revolution the inventors and designers frequently helped each other. Patent legislation was apparently loosely enforced, if at all.  Some of the major inventors never got rich and many died poor.

Not only does the current obsession with patents restrict competition, the large sums of money involved add to costs and eventually come out of the pockets of customers.  And in any case, do we really need all these gadgets?

Probably we would all be better off if there was no patent legislation.

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