State of Innovation

Patents and Innovation Economics

Perfect Competition is Economic Equivalent of Altruism Morally & Why it Matters to Patents

Perfect competition is when no one producer or consumer has the ability to affect the market price and all producers and consumers compete for a homogenous product, driving down the cost of the product.  Under perfect competition, a producer’s profit is eliminated or at least reduced to a trivial return.  Why this matters to patents is that the theory of perfect competition is often used to attack the patents.  It is argued that patents allow producers a differentiating feature or product and therefore they have a greater margin than their competitors.  Economists argue this means that the patent holder is getting monopoly profits according to the “perfect competition” theory and they call this profit a “deadweight” loss.  This supposedly shows that resources are not being allocated efficiently.

So why do I say Perfect Competition is the equivalent of Altruism morally?  Altruism is the idea of self sacrifice as a moral value and perfect competition is the economic idea of sacrificing a producer profits and a consumer’s right to choice.  The goal of perfect competition is that no one, producer or consumer, is treated as an individual and everyone needs to be sacrificed to the altar of perfect competition collective.  There is never any discussion of property rights with respect to “perfect competition” or individual rights.

Ayn Rand often stated that so called defenders of capitalism are often worse than its detractors.  Perfect competition is another example of this.  The Chicago School of economics, which included Milton Friedman, pushed the idea of “perfect competition.”  The book of A Random Walk Down Wall Street was the application of perfect competition to Wall Street by a Chicago School of Economics professor.  Perfect competition is the enemy of capitalism, individual rights, and economic growth.

Real per capita growth is the result of increases in one’s level of technology.  Under perfect competition, there is no reason to invest in creating new technologies and in fact there is no reason to invest at all.  Under perfect competition every investment yields the same low rate of return or no rate of return.  Perfect competition is used to justify antitrust laws that destroy property rights and most importantly property rights in inventions.  Perfect competition results in the same sort of idea of self sacrifice as altruism and is totally incompatible with capitalism, property rights, natural rights, and human happiness.

 

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October 19, 2011 - Posted by | -Economics, Blog, Patents | , , , , ,

2 Comments »

  1. History of Perfect competition http://capitalismmagazine.com/2000/02/pure-and-perfect-competition-by-what-standard/

    Comment by dbhalling | July 6, 2014 | Reply

  2. Frank Knight, father of the Chicago School of Economics and main proponent of “perfect competition” wrote that the “Christian conception of goodness” “is the antithesis of competitive.” Conservative F,A. Hayek wrote that “it may be a good thing if the monopolist is treated as a sort of whipping boy of economic policy.”

    http://capitalismmagazine.com/2000/07/the-three-myths-of-antitrust-part-3-perfect-competition/

    Comment by dbhalling | July 6, 2014 | Reply


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