Copyright is a Monopoly! (And isn't like normal property)

JANUARY 31, 2011

The equation of ‘intellectual property’ (IP) such as copyright with (traditional “real”) property is frequently made, especially by those advocating its extension. However, this equation is fundamentally erroneous and results in very serious misapprehension of the nature and effect of IP. In particular, patents and copyright confer monopolies in a way that ownership of real property does not.

How is it different?

‘Real’ property like an apple, a car or an acre of land can only ever be used by one person/entity at one time – in economist’s terminlogy they are ‘rival’ goods. Giving someone exclusive rights over them therefore does no harm – only one person can have it and via trade we can ensure the person who values it most ends up with it 1. Here, creating property rights leads to an efficient outcome (at least in our simple case – in more complex setups we would need to think about complementarities, transaction costs etc).

By contrast, a copyright in, for example, a particular text confers not simply control over this or that particular book containing the text but over every instance of such a book. This is the very essence of a monopoly: being sole supplier of some good!

And it has all of the standard consequences of the monopoly: prices rise relative to what they would have been and access is reduced relative to its efficient level in which the price equals the cost of reproduction (i.e. we have a “deadweight” loss).

Furthermore, this cost of monopoly can be particularly serious when we have extensive “reuse” – i.e. new work builds upon old – as the monopoly inhibits not only access by users but the creation of new creative work.

The difference then between “normal” property and “intellectual property” is the difference between giving someone control of one apple (the apple they bought say) and control of all apples. The latter results in significant harm and inefficiency while the former does not.

Now, of course, the fact copyright is a monopoly does not mean it is per se bad. After all, we are deeply concerned with the incentives to create and the copyright monopoly helps provide such incentives.

We may therefore be willing to tolerate the ex-post costs of a monopoly because of the ex-ante benefits it provides in incentivizing and rewarding the creation of new work. But this is fundamentally a trade-off and one which gets worse as the monopoly is extended – a completely different situation from that with “real” property.

This point is made elegantly by Macaulay (opposing a copyright term extension in the 1840s):

“It is good that authors should be remunerated, and the least exceptionable way of remunerating them is by a monopoly. Yet monopoly is evil. For the sake of the good we must submit to the evil: but the evil ought not to last a day longer than is necessary for the purpose of securing the good.”

This is not something one would write about normal, ‘real’, property.

Substitutes (or, what exactly is a Monopoly)

Some people, particularly rights-holders, tend to argue that copyright isn’t a monopoly because of the existence of close substitutes (Helprin does this too where he tries to distinguish expression and ideas). In a strict sense this is simply false: a monopoly is the control over all (or most) of a market in a particular good (in this case the copies of a given cultural work). If entity X has monopoly in apples, the fact that I can buy oranges instead of apples does not change the fact that X has a monopoly.

However, in a broader sense this point is correct: the “proximity” of substitutes will clearly affect the demand curve a monopolist faces and therefore the price they can charge (in the extreme case when substitutes are perfect the ‘monopoly’ of course disappears).2

This is the point lying behind the copyright/patent distinction – the argument being that copyrighted works have much closer substitutes than patents (whether this actually true is unclear to me: what substitutes were there for Harry Potter? Many patents have relatively close competitors etc).

Nevertheless the fact remains that a copyright still acts like a monopoly in permitting the owner of a copyright to raise price above what it would have been (if not there’d be no point in having it – at least the “economic” rights portion). Furthermore, one has to be cautious in one’s logic here: the existence of close substitutes may lessen the harm of a copyright monopoly but it also reduces the benefits (the revenue incentives).

To put it most bluntly:

If copyright isn’t acting like a monopoly then, while causing little harm, it’s also not doing much good.

Specifically, if substitutes are sufficiently close that the copyright holder can only raise prices (much) to a very small degree above reproduction cost (and hence we can say no monopoly exists), then the benefits of the copyright, in terms of increased revenues to the copyright holder, must be commensurably small.

Colophon

I wrote the original version of this post over 3 years ago but failed to hit publish for reasons unknown. It’s creation was motivated by being pointed at this article by a Mr Helprin (who later fleshed out his thesis into a book). Discussions over the intervening years, especially with those advocating the extension of copyright, have only made it clearer how important it is establish the basic point that ‘copyright is a monopoly and isn’t property’.


  1. To a crude first approximation. There are many reasons why this ‘efficient’ trade may not happen (see next sentence). [return]
  2. As recognized in antitrust law with the endless discussions of what constitutes the ‘market’ for a given product. [return]