Limits of monopoly

By Bill Kaye-Blake 26/09/2012

The Kim Dotcom saga is a great illustration of the interdependence of legal and economic systems. To summarise:

  • some people had a legal monopoly
  • it was not a natural monopoly
  • technological change made it simple to subvert the legal monopoly
  • which Dotcom allegedly did
  • so the owners of the legal right summoned the authorities
  • who used illegal means to enforce the legal right.

We can argue about whether the granting of legal monopolies for creative products is utility-enhancing. There are good arguments on both sides. What is clear is that the monopoly needs legal definition and protection. It doesn’t exist outside the legal system that produces it.

In addition, technological development changes the cost of monopoly, or, more correctly, the cost of enforcing the monopoly. Any noob who can point and click can copy digital music and video. Copying cassette tapes required more time, cost more, and had less reach. Pressing albums? Making wax cylinders? A bit more specialised still.

Regardless of the cost, the owners had legal rights and correctly expected to exercise those rights. They asked the legal system to enforce the rights they had acquired.

Up to this point, it is a banal story of copying. Yawn. Yet another copyright infringement, with colourful characters and big numbers. And made a little sexier because the internet is involved*.

Then comes the interesting part: in order to enforce the right, the authorities feel they have to go outside the law. That suggests that the monopoly right given under the law is very fragile under current technology.

Which in turns suggests we may be reaching the limit of this type of monopoly. It is not natural; now it may be becoming untenable. Exactly what will replace it is uncertain. Either a weakening of the monopoly right or a strengthening of the enforcement regime is possible. A widening gap between de facto and de jure is also possible. If nothing else, Dotcom has shown us that change is inevitable.

*It has seemed to me for years that ‘on the internet’ has served as an ooga-booga. Compare:

  • ‘Con artists prey on elderly’ vs ‘Con artists prey on elderly on the internet’
  • ‘Teenage boys view sexy photos’ vs ‘Teenage boys view sexy photos on the internet’
  • ‘My cat did this cute thing yesterday’ vs ‘My cat did this cute thing yesterday on the internet’.

See what I mean?