By Thomas Knapp, on January 4th, 2012
Our household transitioned to Compact Fluorescent Lamp (CFL) light bulbs years ago. We did it over time, replacing our incandescent bulbs as they burned out. At this point, the only remaining incandescents in the house are those “makeup bulbs” in the significant other’s vanity lamp.
Why did we change over? Because the CFLs were advertised — truthfully, so far as I can tell — as longer-lasting and more efficient, such that they more than cover the higher cost. My recollection is that in four years or so, we’ve had one CFL “burn out” (and a couple get broken, but incandescents would have broken in similar situations too). We’re happy with the quality of light, I don’t have to climb around changing bulbs as often, and the effect on our electric bill, if relatively small, has at least been in the right direction.
Personally, I think CFLs, LEDs, etc. are the bee’s knees. But let’s get one thing straight: The “incandescent light bulb ban,” intended to make you use them, has little or nothing to do with energy efficiency. It’s about money and it’s about using government regulation to strangle competition.
Here’s how it works:
Big light bulb players (General Electric, Phillips, Osram Sylvania) develop and patent CFL technologies, and put big money into facilities to mass produce them. Then they milk what money they can out of their patent-protected monopolies.
But it turns out to not be as much as they’d have liked — most people would still rather spend 50 cents on a 100-watt incandescent bulb than three bucks on a 26-watt CFL. And there are plenty of smaller companies still making those cheaper bulbs. When the patents expire, instead of rushing to produce CFLs too, those smaller companies just keep cranking out those cheap incandescents. And the big guys keep taking it in the shorts, or at least not making nearly as much money as they believe they’re entitled to make.
Solution? “Hey, we spent bazillions of dollars developing and implementing this technology that not everybody wants … let’s spend a little lobbying forcing them to use it … and while we’re at it, let’s force those smaller firms to either spend bazillions of dollars implementing it as well or get out of the light bulb business, too.”
In a real free market, CFLs, LED bulbs, etc., would — in my opinion — have eventually triumphed over the incandescent bulb (with some niche/aesthetic exceptions) by getting ever cheaper and ever more efficient. But why continue to compete and innovate when you can just drag a few papers sacks full of cash down K Street and get your competition outlawed?
Some people refer to this as “light bulb socialism.” I call it “actually existing capitalism.”
By Simon Grey, on January 2nd, 2012
Tabarrok focuses on four policy areas in which changes could yield very positive results. He kicks off the short eBook by focusing first on patent reform, noting that many areas of patent coverage (software, technical processes e.g.) have low innovation costs and, as such, are not worthy of patent protection. In fact, his recommended patent reform is basically total abolition of all patents, save for medicine and a handful of other fields. This seems rather viable given that most inventions and innovations are generally cheap and likely inevitable. He also has a few short steps that would help as well, like requiring a functioning prototype and capping terms to seven or fourteen years depending on category.
He next turns his sights on to a prize system for innovation. His proposed policies are well-intentioned but naïve. He proposes that the government fund sizeable prizes (to the tune of millions or billions of dollars per prize) with specific goals—not methods—in mind. This should work in theory, but the fundamental problem with this method is that it fails to discern how the government would go about setting the most economic goals and prizes. This process could become highly politicized, as anything involving billions of federal dollars tends to. However, venture capitalists and innovation firms should take note of this recommendation and implement it.
Tabarrok closes his short book by looking briefly at education—both public and post-secondary. Regarding the former, he recommends reform. Why this is preferable to privatization is unstated, but perhaps that is beyond the scope of the book. One curious thing about is argument is how he claims that there is a correlation between high school graduation rates and GDP growth. While statistical analysis bears this out, it is worth noting that there is no proven causal relationship between the two. It could be that GDP growth causes increases in the rate of High School graduation as families become wealthier, and better able to secure leisure time for their children, thus reducing teenagers’ need to work.
It is worth pointing out, though, that public education in the US is crap, and is entirely too test-driven, thanks in large part to No Child Left Behind. Tabarrok doesn’t dwell much on this, which seems to be a bit of an oversight.Finally, Tabarrok turns his sights on to college education, noting that there is undoubtedly a college bubble and that there should thus be fewer college students. Government reform is recommended, since that is a source of the current malinvestment. Better education as to the benefits of a post-secondary education is also recommended, though this seems largely fruitless.
In all, this short book is a rather thought-provoking read. Readers are not likely to agree with all the answers, but the questions are worth mulling over. In fact, the questions the book asks make it worth the purchase. There is a lot to consider and debate, thanks to this book, and the answers Tabarrok provides are considerably less hackneyed than what has been heretofore seen. As such, the book is a recommended read.
By Doug Gentry, on December 5th, 2011
The pharmaceutical giant, Pfizer, watched its main source of revenue and profits, Lipitor, lose its patent protection this week, and now faces competition from generic equivalents. In 2010 Lipitor was the second highest selling prescription drug with $5.2 billion in sales in the U.S. alone. (source: Drugs.com). Now, in the next year, prices of the generic drug, Atorvastatin, should drop dramatically. The Lipitor saga gives us an opportunity to see market forces in action, but it also points out the problems when insurance coverage is involved.
 Lipitor Brand  Generic Lipitor Like most first world countries, the United States uses the patent system to encourage research and development. If a pharmaceutical company can develop a new drug, they can maintain a government approved monopoly on the sale of that drug for up to 17 years. Monopolies drive higher prices, which helps the inventor, Pfizer in this case, recoup their research costs, and return a handsome income to their shareholders. Once the patent runs out, other manufacturers can apply to produce the drug. This increased competition then quickly drives down prices. So far, this is a classic example of market forces at work.
Pfizer has been planning for this day for a number of years, and with annual sales figures like those in 2010, this is vital to the company’s fortunes. The company has triggered a number of legal and regulatory efforts to delay the arrival of generic equivalents. For a compilation of news articles on Lipitor, see this page in The New York Times.
Two particular strategies twist prescription drug coverage in favor of the brand name. Many prescription drug plans have incentives to encourage patients and their physicians to use generic drugs. Often this is done with a lower co-payment on the part of the patient. The lower co-payment provides an incentive for the patient to accept a generic equivalent, and the insurance plan saves money by paying the lower, generic price. Pfizer (and other drug companies facing similar out-of-patent challenges) is trying to subvert this incentive. Here’s a hypothetical example.
These figures are illustrative – made up – but make the point.
Typical Brand vs. Generic Comparison for a Drug Plan
Brand: Patient Copay: $30 – Total Cost of Drug: $200 – Insurance Pays: $170
Generic: Patient Copay: $10 – Total Cost of Drug: $50 – Insurance Pays: $40
Now Pharmaceutical Company Offers a Copay Discount
(Pfizer discounts its price of the brand drug to cover reduced copay)
Discount Brand: Patient Copay: $8 – Total Cost of Drug: $178 – Insurance Pays $170
With this discount arrangement the patient is happy, the drug store doesn’t lose any money, but the insurance company still pays the larger cost. This puts upward pressure on insurance premiums.
Another strategy – Pfizer offers a significant discount on the price of brand name Lipitor to pharmacy chains as long as they agree to not provide generic equivalents. The chains save money, and can pass some of that on to patients, but the insurance plans that pay for the drugs don’t enjoy any savings.
Is this legal? The second, discounting strategy with pharmacies, smells a lot like restraint of trade/anti-trust concerns to me. The earlier example, offering a discount on copays, seems legal. Are either of these good social policies? Not a chance.
These creative approaches illustrate one of the problems that insurance introduces into a market. In healthcare, patients have enough discretion that they can alter their buying behavior, based on prices they face. Yet the patients don’t see or feel the full price of their purchase decision. In a regular market the patient balances the benefit of the purchase against the price, and makes a good decision on allocating resources. That good decision helps society. With insurance the patient sees only a small fraction of the total price, and may make a decision that is not socially optimal. This breakdown in market forces is one of the challenges our healthcare reform goals face. Ideally we would like patients to be full partners in the decisions made about their care. Insurance blunts that participation.
By Simon Grey, on September 21st, 2011
President Obama today signed into law the Leahy-Smith America Invents Act (H.R. 1249) a bipartisan, bicameral bill that updates our patent system to encourage innovation, job creation and economic growth. Both Houses of Congress overwhelmingly supported the proposal, which was sponsored by House Judiciary Committee Chairman Lamar Smith (R-Texas). The House of Representatives passed H.R. 1249 by a vote of 304-117 earlier this year. The Senate passed the bill by a vote of 89-9. Senator Patrick Leahy (D-Vermont) partnered with Chairman Smith on the legislation. Congressman Smith led the House efforts on patent reform for more than six years.
Much-needed reforms to our patent system are long overdue. The last major patent reform was nearly 60 years ago. The House patent reform bill implements a first-inventor-to-file standard for patent approval, creates a post-grant review system to weed out bad patents, and helps the Patent and Trademark Office (PTO) address the backlog of patent applications. This bill is supported by local companies as well as many national organizations and businesses.
I’m not sure what to think of this.
On the one hand, this streamlines the patent system, which I begrudgingly support. The first-to-file standard makes resolving multiple claims dead simple: Who got to the patent office first. And weeding out bad patents is also good, especially in light of the standards (distinct, non-obvious, etc.).However, this legislation could very well increase the occurrences of patent-trolling. This would actually discourage invention and innovation in the long run because inventors would more than likely seek to avoid paying royalties to produce their own inventions, so they would have to create modifications to their own product in order to sell them. I imagine this effect would be more prominent among large corporations than among individual inventors because corporations tend to be more susceptible to industrial/commercial espionage.
At the end of the day, though, the simplest and most effective reform is to simply abolish the patent system altogether.There’s little evidence that the costs of the patent system outweigh the benefits thereof.
By Simon Grey, on August 10th, 2011
Consumers are watching as many – if not more – films than ever for less money and time than ever, for a third of the cost. The money that had been spent on (now unneeded) overheads can go on other things. Be sure to avoid the broken window fallacy – the saved money will go into other productive things that people want. As Blockbuster falls, something else people want will rise. And, at the margin, lower costs mean that there should be more movies made per dollar spent.
I think this pattern might hold elsewhere, too. Since getting a Kindle e-reader in June, I’ve read more books than I did in the entire year up to that point.
Although costs aren’t falling yet – it’s a proprietary Amazon device, and they’re keeping the costs high while subsidising the cost of the device itself – the shift to e-readers means that authors will eventually be able to bypass publishers and significantly increase their profit-per-purchase. Like the rise of Netflix, this will probably mean less money spent on overheads and more spent on actual content.
Recall that those who defend copyright laws on utilitarian grounds argue essentially that the purpose of granting creators a temporary monopoly license is to ensure that people have an incentive to create. This being the case, one reasonable proposal to be offered to the utilitarian sect of copyright defenders is to decrease creators’ state-granted monopoly powers as technological innovation increases.*
Technological growth reduces publication and distribution costs for creators, enabling them to not only sell directly, but to increase their profit margins while decreasing prices. As such, monopoly protections are less necessary (if not altogether unnecessary) in the face of technological growth because technology makes it easier for creators to turn a profit, which, it should be remembered, is the whole point of having copyright laws in the first place. Thus, if creators can make a profit without doing much to protect their product, then it seems obvious to conclude that copyright is largely unnecessary, and certainly does not draconian enforcement.
Note: Software is a nebulous entity that is somewhere between copyrightable and patentable in terms of classification. As such, it is not covered under this proposal because it would drive this proposal. If it absolutely must be given IP status, it should be considered its own entity with longer terms than patents but shorter terms than copyright. Furthermore, it should also have the novelty prerequisite of patents. Given the complexity of this subject, though, this discussion is best reserved for another post.
By Simon Grey, on July 25th, 2011
We are richer than our ancestors mostly because of innovation. But most of the innovation benefits we receive are externalities – we only pay our ancestors (or those to whom they transferred their property rights) for a small fraction of that benefit. If we instead had better property rights for innovation, we’d pay a large fraction of our income as compensation for past innovation. That would increase incentives to innovate, the rate of innovation, and the fraction of the economy devoted to innovation. With good institutions, I could imagine more than half of all income being paid to the innovation industry.
There are several problems with this paragraph. First, as net-based pirates have shown, there are plenty of people who try to avoid paying for rights to use IP,* which invalidates his claim that “we’d pay a large fraction of our income for past innovation.” We’d likely pay more, to be sure, but given man’s tendency to avoid paying these sort of things, it foolish to say with any degree of certainty that we would pay a lot.
Second, there is absolutely no basis for saying that there would be more incentive to innovate. Since we have tried IP rights, we cannot tell what the rate of innovation would be in their absence, and cannot therefore properly compare the rate innovation under a system of IP to a system with no IP rights. Any attempt to do so is pure conjecture. Furthermore, all innovation is derivative, so even if people were more inclined to innovate more, IP law would more than likely prevent them from doing so since they would either have to license the product being innovated or be forcibly prevented from innovating.
Third, the stifling nature of IP enforcement, as noted before, would (and has) actually stifled innovation. Patent jumpers have forced people to redesign improvements because their proposed solution would infringe on their patent. This hardly encourages innovation, and it is hard to see how more of this would do so.
Alas, it is devilishly hard to design good innovation property rights. Patents are supposedly the best we have now, and they are often terrible. But over the next few centuries, we might just create better institutions (e.g., futarchy) to better encourage institution design, and within those institutions, folks may well come up with better designs for institutions to encourage innovation. Optimist that I am, my best guess is that we will succeed at this.
Perhaps the reason it is so difficult to design good innovation property rights is due to the fact that innovation is not actually property, and thus cannot be protected with rights. It is hard to see how copying someone or something diminishes them in any way. Some might argue foregone income, but this argument is riddled with errors (for one, there is no guarantee that a given consumer would have purchased from the innovator anyway, and no one has a “right” to be paid anyway).
Of course, it is possible that “society” will create institutions that actually incentivize innovation. I would bet that said institutions will consist mostly of educating people how IP is a myth, and does not deserve any form of monopoly or protection from the government.
Of course in the long run innovation must run out, and then we’ll have a long stable future with little innovation. But I expect the innovation era to last a few more centuries at least, with the best innovation yet to come.
I will deal with this in a separate post.
* Note: it is assumed that Hanson’s call for property rights on innovation either largely resembles patent and possibly some forms of copyright, at least in principle.
By Bhagwad Jal Park, on October 30th, 2008
Can you imaging inventing something new and refusing to patent it? We game theorists are a greedy lot. While not doing anything actually illegal, we show no mercy when it comes to an opportunity to make lots of money. In this latest nefarious article, I am going to demonstrate how it is in your best interests to keep silent about your latest invention when it suits you.
First we must understand a key concept in game theory called a “holdup.” A holdup is a situation where you are able to demand almost any amount of money from a person because they have no choice but to pay you or suffer incredible losses. This isn’t just restricted to extorting money at a petrol bunk. Holdups are frequently seen in businesses.
For example, suppose all the pilots in a particular airline decide that they’re not getting paid enough. All they have to do is to go on a collective strike and ask for a 300% raise. Assuming that there are very few pilots around, such a strike will have a compelling power. The reason is twofold. First of all, being a pilot is a specialized skill. And second, the cost of paying a pilot is minimal compared to the cost of maintaining an airplane. So if the airline stops operating because of the pilot strike, they can hardly save any money by not paying the pilots since their fixed costs on machines, etc., is sky high anyway. The pilots are trying to “holdup” the airline company.
Image Credit: Ismael Olea
In fact, the threat is so real, that certain governments have imposed rules on how long skilled labor such as pilots can go on strike.
Such a strike would not work in McDonald’s for the reasons mentioned. The labor is pretty unskilled, and a strike would hurt McDonald’s much less since McDonald’s would save on employee fees which are pretty high. So if the employees threaten to strike (remember that the more people who strike, the more difficult it is to maintain the strike since a strike is like a cartel), McDonald’s would simply fire them and hire more workers since they are easy to replace. Thus, an attempted “holdup” of McDonald’s would not succeed.
Patent law gives inventors the potential to holdup companies that rely on the patent. Wouldn’t it be nice if I had a patent on the technology used to create integrated circuits (IC)? Every single chip company in the world would pay me money, and I would be a rich man with no worries (financially at least).
But suppose I’m a manufacturing company, and I have several ways to manufacture a particular product. I must check beforehand whether any of the steps involved in a particular method have a patent on them. If they do, then I must either come to an agreement with the patent holder to pay her a reasonable sum of money before I Invest heavily into it or choose another method.
If I’m foolish enough to blindly set up my manufacturing plant in a way that utilized a method that has a patent on it, the patent holder can holdup my firm. They can demand outrageous fees for allowing me to utilize that method since it will cost me millions of dollars to set up a new plant that avoids that step.
But suppose I do the research beforehand and find that no one holds a patent for a particular step, and I build my factory around it. After this, a clever inventor reveals that he has just now got a patent for a particular method that my plant utilizes, and I’m screwed. The crafty inventor had purposely delayed his patent on that technique so that when I did a check, nothing showed up. Now after my plant is complete, he has completed the process and obtained a patent. He is now in a position to hold up my firm.
So if you’re thinking of obtaining a patent, it is worthwhile for you to hold off a little bit and wait till a firm invests heavily into a product or process which utilizes your invention. Then you must strike and obtain a patent and keep holding up the hapless firm! I can well imagine professionals having dozens of unpatented inventions, keeping a keen lookout for an opportunity to pounce on a company that will utilize one of their inventions.
Yes, we game theorists are crafty. Nothing wrong in that, is there?
 Join the forum discussion on this post - (2) Posts
|
|
Most Popular Posts