The Ethical Economics
Study Center


In terms of ethical principles, free and open competition would require that businesses refrain from activities that would prevent competitors from participating in the market and also to refrain from collusive arrangements that serve to enhance monopoly power in the market. It also requires that businesses not inhibit the flow of information or ideas, even to potential competitors. The standard static model of perfect competition assumes that all firms share the same costs of production and have the same technology. That implies that trade secrets or the prevention of technology usage through patent protections are disallowed. These behaviors are clearly not promulgated to the same degree as behaviors regarding violence, theft and deception. Nonetheless, many do believe that sharing information is a good thing. Indeed, the entire educational system in countries around the world is based on a premise that widespread education is a much needed public good. However, that same sentiment does not usually carry over to private businesses, who often work very hard to protect their processes, ideas, and innovations. Businesses also invariably strive, via numerous methods, to enhance their monopoly power in their markets because it is in their own individual interests to behave in this manner.

The standard argument for trade secrets and patent protection is that the profits generated by temporary monopoly privileges are needed to stimulate innovative activities. Take away the ability of firms to profit from their R&D and the firms may cease innovating thereby negatively affecting long-term productivity growth. Long term efficiency improvement that outweighs the short-term monopoly cost is not possible in the static economic model because that model only has one period of time. However, just because the argument for patent protection is conceptually sound doesn't mean it works out that way in the real world. Recent work by Boldrin and Levine (2013) summarize the so-called patent-puzzle; namely the fact that "(de)spite of the enormous increase in the number of patents and in the strength of their legal protection, the US economy has seen neither a dramatic acceleration in the rate of technological progress nor a major increase in the levels of research and development expenditure." They continue stating, "The historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side effects, strong patent systems retard innovation with many negative side effects. More generally, the initial eruption of innovations leading to the creation of a new industry—from chemicals to cars, from radio and television to personal computers and investment banking—is seldom, if ever, born out of patent protection and is instead the fruit of a competitive environment."

The implication is that the strong demand by some industries for strengthened enforcement of intellectual property rights internationally may cause greater monopoly profit without stimulating greater innovation and economic growth.

Steven Suranovic, December 1, 2019

Ethical Principles
Promoting Economic Efficiency

  • Information/Knowledge Sharing
    • No secrecy
    • No intellectual property



  • Asymmetric information enables monopoly power
    • And monopoly power reduces economic efficiency