Part 1. Price discrimination Firms may engage in price discrimination to maximiz
ID: 2439287 • Letter: P
Question
Part 1. Price discrimination Firms may engage in price discrimination to maximize their profits. Describe the conditions necessary for a firm to implement price discrimination, and give a personal example of whe you have experienced price discrimination. (max. 1.5 points) Part 2. The case against patents. Patents create government-granted and generally accepted monopolies even though monopolies are not usually encouraged as they tend to restrict output and charge a higher price leading to lower consumer surplus. However, some criticism towards the usefulness a patents exist, and even firms start questioning the benefits of patents. Listen to the following podcast Planet Money: The case against patentse and discuss: 1. What are the economic benefits and costs of patents? (max. 1 point) 2. Even though firms are generally eager to file patents, why is a company like Tesla giving up its patents? Which industry would likely to be hurt most without patents and why? (max. 1.5 points)Explanation / Answer
Answer 1.
Promoting Inovation:
Patents promote innovation through the grant of limited monopolies, as a reward to inventors for the time, effort and ingenuity invested in creating new products and processes. The potential for financial returns adds an incentive to the traditional rewards of scientific innovation, such as academic recognition and promotion within research institutions. Without the incentive provided by patents, private investors may be reluctant to invest, resulting in greater calls on government funding or a failure to develop and exploit new technology.
Answer 2
Tesla giving up its patent because they believe in inovation, and keeping patent they believe that they are not inovating much. Its is believe that Tesla opened up its patents to tip the scale between the two competing technologies in its favor. Tesla’s patents are more likely to be adopted by other auto makers because they are free, the electric vehicle technology is more likely to become mainstream, and holding on to this belief, component suppliers (including energy companies by extension) are more likely to make investments into the electric vehicle technology rather than the competing hydrogen fuel-cell vehicle technology.
A widespread meme in the tech community holds that patents are a path to riches: an entrepreneur who solves a key technical problem and receives a patent can build a business on the technology and ride to glory. Xerox and Polaroid are celebrated examples (both now nearly extinct). But, IMHO, for most small companies today, patents are just about worthless. Many entrepreneurs misunderstand the value patents create, and how difficult they are to enforce.
Patents are not necessary for economic growth. While the US and Europe have long-established patent systems, China’s high-growth economy does not; only recently has its domestic patent system grown, and its purpose is not so much to protect inventors as to lend credibility to their work.
In fact, patents actually hurt the economy. In the US, the cost of patent trolls – firms that acquire strategic patents and use legal threats to extract steep royalties from real innovators – now amounts to 12 per cent of business R&D spending. It is, in essence, a new tax on innovation.