Innovation & IP Protection: The 'I' Factor

New information generated has a public goods character that is it is of benefit to the public at large and once common knowledge, it can be widely used. To generate this new information, the Government has to create some incentives. These incentives are in the form of IP protection. The valuation of a asset at the time when these rights are granted to the moment when they create a monopoly position varies tremendously. At the time of granting IP protection, a legal monopoly is generated that is the exclusive right to benefit from the invention and aspire for rent-seeking behaviour. But the extent to which this power generates monopoly power ex-post is referred to as the economic monopoly. This depends upon a number of factor. Most significant amongst others being the innovativeness of the invention that are there closely available and cheaper substitutes available for the product. Availability of closely available substitutes devoids the product of its potential rent seeking behavior. Secondly, as IP enables pricing above the marginal cost of producing a good, it attracts entry of competitors.
Thus, for an IP protection to lead to Significant Market Power(SMP) and thereby, a case for antitrust intervention, the innovativeness of the product and consequently its monopoly power ex-ante become a critical factor.