Intellectual property laws have been intact for quite some time now, and their purpose is to protect producers from other people in the market who could copy their ideas and sell them as their own. For example, people cannot copy the iPhone or any other smartphone and sell it off as their own product, because that violates intellectual property laws; specifically, it would violate patent laws. Why would this be the case? Because not only was it the creative design of someone else and you are therefore going to make a profit based on their product, but also because you enter the realm of consumer manipulation. Consumer manipulation is the equivalent of fraud in the market, and that’s essentially what intellectual property laws work to protect consumers from. If a law is violated by a producer who sells a fake iPhone, they will be subject to various patent laws and will face a fine.
So why are intellectual property laws connected to perfect competition? First, we have to understand what perfect competition is. Perfect competition is an economic principle that requires many different vendors in the same market producing and/or selling similar products for, if they want to remain in business, similar prices. This principle requires that there is perfect information in the market, meaning producers and consumers know what each other’s prices are, and consumers ultimately know every product that is offered. Perfect competition ultimately leads to the consumer making choices based solely on the product and/or store rather than a product and price consideration. Examples could be computer stores selling the same motherboards, CPUs, GPUs, and other components as each other. Another example could be a tech conglomerate like Apple, who makes and sells their own phones, just like Samsung, Google, and LG. You do not have to be a producer to be involved in perfect competition; you just have to sell similar or equal products for similar or equal prices. Companies in perfect competition make a normal profit, or zero economic profit, because economists assume that they are interested in maximizing their profits by producing only at their estimated demand, or where marginal revenue equal marginal cost.
Intellectual property helps maintain perfect competition because it prevents fraud in the market and helps to grow an individual market because competitors cannot copy one another; they can only create competition products, which includes, but is not limited to the dimensions, the components, the name, the features, etc. Intellectual property laws help protect producers and consumers alike because it not only protects the design of different products, but it forces producers to make different products, creating a wide variety of products for the consumer to choose from. This enhances perfect competition because by preventing consumer manipulation, it maintains perfect information in the market, upholding the economic principle.
To better understand the two principles, let us delve into the market of computers. There are several different types of computers produced by dozens of vendors across the U.S. and even the world. Whether we’re talking about laptops or desktops, all competitors have sunk their teeth into every edge of the market. The combination of the components inside a machine cannot be protected by law because it restricts vendors and rules out a viable option to make their machine run. For example, you can’t argue that intellectual property laws protect you from someone else putting a Core i7 along with a Samsung SSD in their system just because you put it in yours first. Where intellectual property laws begin to apply is in the design of the laptop itself. For example, Dell cannot make a laptop with the same color, external connections, ventilation design, and logo as the HP Envy, just like HP cannot copy the Dell Inspiron. That would be in violation of trademark laws against the Envy and Inspiron names. It would be fraudulent for either company to try and sell an identical product on the market. Intellectual property regulations force both companies to come up with different designs, different connections, and different names for their products, creating a larger product stack for the consumer to choose from.
Desktops are normally the same way. For example, Alienware, owned by Dell, will release a triangular chassis for their desktops, while CyberPower will release theirs in different aftermarket cases made by separate companies. They also feature different connections and performance features from each other. You will notice that computers at similar price points will almost never feature the same connections, features, or components as each other. This is partly due to partnerships made with wholesale vendors such as G. Skill, Corsair, and Intel, but also because of market regulations.
Another example in the market is smartphones. Apple releases a new version of their infamous iPhone every year, while Samsung has the Galaxy S series, Google has their Pixel phone, etc. All phones give a relatively similar experience for the user, as long as it’s the newest version of their product. They all take similar price points and target the same markets, respectively: tech enthusiasts and early adopters.
While these flagship smartphones not only offer similar experiences but also have similar price tags, they do not have the same dimensions, components, or features as each other. For example, Apple has their processors made for their smartphones through a third-party company, parallel to other smartphone companies. Samsung manufactures their own processors, being one of a kind in that regard; however, Apple is beginning to start their own division in the CPU field. Google has their processors made by Qualcomm and Intel but is also trying to make their own chips as well. The RAM, motherboard, storage, and battery are all unique as well, offering different features for different enthusiasts.
The dimensions are different for each phone, the external designs are different, and obviously, the names are different.
What this seems like at first glance is a perversion of perfect competition, or more accurately, laissez-faire economics. The government has regulated the market to prevent businesses from competing for market share of the same products. If the consumer wants a product, businesses should be able to offer them what they want and then beat each other out in terms of price. Therefore, an advocate for laissez-faire economics cannot possibly favor intellectual property laws, right?
Actually, wrong. While laissez-faire is in favor of a free market (“free” meaning free from government regulation), it does not advocate that participators in the market steal from one another or manipulate the consumer. Laissez-faire economics is a simple message for governments around the world that the economy should be left alone; literally translated, laissez-faire means “let it be.” However, once companies begin to steal ideas from one another, it becomes a legal issue, and property should be protected by the owner from unjust seizure. The market is still operating according to laissez-faire ideals because again, laissez-faire does not mean “steal to get ahead.” To oppose this is to ignore a firm’s legal rights to their property, which is something many people do not understand when defending the practices of laissez-faire.
Perfect competition is helped by intellectual property laws. They help prevent companies from copying each other’s products, and as a result help the consumer by giving them more options. Intellectual property laws also help companies stand out in the market because of their unique product stack. An example is Google’s Pixel phone camera, and how many reviewers create an image for their audiences of the superiority of Google’s camera technology compared to iPhone and Galaxy, it’s two prime competitors. Simplicity is usually associated with Apple’s iPhone, while customizability is associated with Samsung’s Galaxy; more specifically, the Android operating system for Galaxy. While not directly related, reviewers have certainly gained more business as a result of more products to review; also, audiences have become more reliant on the opinions of reviewers to decide which phone is the best all-around pick and the best buy because of their experience in tech and the ability to break down “features” into “things you actually need and/or want.” In short, intellectual property laws have helped perfect competition along and does not itself pose a threat to laissez-faire economics as of now, and instead protects businesses from theft and fraud in the market.