Intellectual Property Flashcards
Define Intellectual property.
Intangible ideas, the output of a creative process. It takes an intermediate position between a free resource and tangible property.
Why does IP need protecting?
The MC of copying someone elses IP is very low as it is easy (especially if can be codified). So it is needed to incentivise firms to create inventions as ensures that inventions will become commercially valuable and inventor can reep the returns from their invention.
Give examples where lack of IP protection meant inventors didnt profit?
Charles Dickens moved to selling books in US but they didnt have copyright law to protect European writers so US citizens could read his books for free.
Spangler invented the vaccum cleaner but hoover was first to commercialise it.
What are the characteristics of private goods and services?
Rival in consumption ( finite resources, consumption reduces amount left over for others)
Exculdable (exercise property rights)
Ideas and knowledge are partial public goods. What are the characteristics? And give examples.
Non rivalrous consumption (shared amongst people, 0 MC) e.g music composed by Ed Sheeran
Non excludable (free rider issue - not confined to those that pay for it, once someone gets hold of knowledge it enters the public domain e.g sharing Netflix passwords.
Comment on the followings ability to innovate:
a) competitive market
b) monopolistic market
a) efficient in the short run but no one makes profits so dont have the funds to invest in R&D in the long run, underinvestment in LR
b) inefficient in short run, incumbent in the industry so want to keep minor innovation to prevent incentive to new entrants (as barriers to entry are low) and as there are few competitors they dont need to innovate, often differentiate themselves via pricing and marketing as offer similar products. In LR have higher profits so can finance continuous investment over long period and suspend competitive advantage.,
What are the two purposes of IP protection?
- Approprability; grounds creators exclusive rights over knowledge they create to capture returns
- Legal protection - to prevent others using it without permission
What is a patent?
Legal right sold by the gov to inventor to stop others using , making or selling the invention without permission
Why are patents useful?
Without it the market wouldnt provide incentives to innovate due to the public good natures of ideas.
It provides a headstart in using their innovation and a temporary monopoly so they can reep their rewards which incentivises R&D.
How long do patents provide protection for?
Around 20 years
What is the purpose of the disclosure rule?
Rivals and courts must know whats been claimed
Facilitates follow on innovation (other companies can learn from innovation without infringing patent)
Puts tech in public domain after expiration
What are the advantages of patents?
- rise in MR for firm with patent that innovation captures
- incentivises firms to spend own money on innovating
- ## incentive to invest in R&D as quantity of R&D is determined by private return on costs
Explain the graph that shows advantages of patents?
Y axis = MR
X axis = R&D expenditure
Assumes MC are constant
MR shifts out with patent as will reep more rewards due to their monopoly rights as well as the fact they are not expected to pay back the cost of the patent.
Without patent, R&D level is lower where MR intersects MC.
Explain the graph that shows disadvantages of patents?
- abnormal profits are guaranteed to patent holder due to excludability also deters new entrants as dont have rights to a product
- in a competitive market without patents the MC = MR. The patent owner has incentive to derive higher price at monopoly price. This intersects demand at a lower quantity so consumer surplus falls and a social cost (deadweight loss) arises whereby those that could afford it without the patent no longer can.
Evaluate IP protection in one sentence?
The benefits of innovation outweigh the drawbacks of IP protection in the SR.
