Isn’t it clear at least that the social costs are lower when competition occurs before capital expenditures on distribution and manufacturing? In other words, if our rules resulted in a bunch of very similar products being offered to consumers, then we should be doing something different.

There are feedback loops throughout the innovation pipeline. We may have a tough time quantifying the costs and benefits of interfering with feedback loops between a firm and its customers (wherein “customers” will be different at each stage in the pipeline). But it seems unobjectionable to me at least that regulators should force as much of the potentially anticompetitive collaboration between separate chains of feedback loops to as early a point in time as possible. In other words, the social costs are lower the further to the left competition occurs in the diagram linked.

A corollary to this is that IP term length should be limited enough so that new investments are being made continuously within an industry. If the companies doing the work on the right aren’t constantly making investments on the left, then the term length is either too long or too short. (The strength of the rights complicates that picture, of course.)

I think the success of the Orphan Drug Act as an alternative to patents under Hatch-Waxman bears out some of the features of this picture.

A more general point to be made in this context is that competition and monopoly are not mutually exclusive strategies for promoting innovation with a dynamic picture, in mind. I think we can all agree that Carrier is doing a great service to everybody involved with this field — either directly or indirectly — by putting more dynamic theories front and center.