Michele Boldrin Quotes

History, practical experience, common sense and economic theory all agree: economic competition is probably one of the greatest ideas humans ever came up with. When people compete to achieve the same goal, great things seem to happen that otherwise would not. Things get done faster, cheaper, and better; new methods for lifting a weight or quenching a thirst are invented; the average guy ends up with more of the stuff he likes at a lower price than before. That is why, in the end, socialism collapsed like a rotten wall: it did not allow its people to compete and, as a result, it not only made their economic life miserable, but strangled their hearts and souls.

While there are certainly informational spillovers as ideas move from person to person, it is hard to see why in most instances they are not priced. Although it is possible to imagine examples such as the wheelbarrow where an idea cannot be used without revealing the secret, relatively few ideas are of this type. For copyrightable creations such as books, music, plays, movies and art, unpriced spillovers obviously play little role. A book, a CD or a work of art must be purchased before it can be used, and the creator is free to make use of his creation in the privacy of his home without revealing the secret to the public at large. Similarly with movies or plays. In all cases, the creation must effectively be purchased before the “secret” is revealed.

Although the view that, once discovered, ideas can be imitated for free by anybody is pervasive, it is far from the truth. While it may occasionally be the case that an idea is acquired at no cost—ideas are generally difficult to communicate, and the resources for doing so are limited. It is rather ironic that a group of economists, who are also college professors and earn a substantial living teaching old ideas because their transmission is neither simple nor cheap, would argue otherwise in their scientific work. Most of the times imitation requires effort and, what is more important, imitation requires purchasing either some products or some teaching services from the original innovator, meaning that most spillovers are priced.

In the case of patentable ideas such as the wheelbarrow, the idea of unpriced spillovers is more plausible. Yet there is no reason to believe that it is of practical importance. Indeed, there is a modern example of the wheelbarrow – that of Travelpro – the inventor of the modern wheeled roll-on suitcase with a retractable handle. Obviously such an idea can not both be useful and be secret – and once you see a wheeled roll-on suitcase it is not difficult to figure out how to make one of your own. Needless to say, Travelpro was quickly imitated – and so quickly you probably have never even heard of Travelpro. Never-the-less – despite their inability to garner an intellectual monopoly over their invention – they found it worthwhile to innovate – and they still do a lucrative business today, claiming “425,000 Flight Crew Members Worldwide Choose Travelpro Luggage.

It is certainly true that imitation is everywhere, from sport to business, from dancing to dressing, from driving to singing. In fact, imitation is at the heart of competitive behavior and of almost any kind of social interaction. Like the fixed cost cum marginal cost argument that, as we pointed out earlier, is so powerful an argument that it can be applied to any and every thing, imitation is so widespread that, when taken literally, it is also everywhere. By this token one should see unpriced externalities in every market where producers imitate each other, thereby concluding that all kinds of economic activities should be allowed some form of monopoly power. Restaurants imitate each other, as coffee shops, athletes, real estate agents, car salesmen, and even bricklayers do, but we would certainly find it foolhardy to grant to a firm in each of these businesses monopoly power over one technique or another. This suggests that equating imitation with unpriced externalities leads us into a dark night in which all cows are gray.