ECON101 ISU Market Structures & Case Against Patents Discussion Discussion on Market Structures Part 1. Price discrimination Firms may engage in price di
ECON101 ISU Market Structures & Case Against Patents Discussion Discussion on Market Structures
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 when 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 of patents exist, and even firms start questioning the benefits of patents.
Listen to the following podcast Planet Money: The case against patents (Links to an external site.) and discuss:
What are the economic benefits and costs of patents? (max. 1 point)
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)
Give feedback to someone else’s reply. (max. 1 point) 7/1/2019
Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
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This is a graded discussion: 5 points possible
due Jul 1
Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
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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 when you have experienced price discrimination. (max. 1.5 points)
Part 2. The case against patents.
Patents create governmentgranted 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 of patents exist, and even firms start questioning the benefits of patents.
Listen to the following podcast Planet Money: The case against patents
(https://www.npr.org/sections/money/2014/07/09/329895088/episode551thecaseagainstpatents) 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)
Give feedback to someone else’s reply. (max. 1 point)
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Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
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Anni Isojaervi
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(https://canvas.iastate.edu/courses/60117/users/38114)
May 14, 2019
Answer on discussion 6:
Part 1:
Monopolies and other imperfectly competitive industries can practice price discrimination, which allows firms to charge different
prices to different consumers based on different willingnesses and abilities to pay. Customers must be segmented into different
groups based on different elasticities. Customers with more inelastic demand are charged a higher price and those with more
elastic demand are charged a lower price. Firms benefit as they receive more revenue. With price discrimination, a firm can
charge $121 for one unit and $111 for the second unit, rather than reducing the price to $111 for both the first and second unit.
Instead of $222 in revenue, they now receive $232. Some consumers who have more elastic demand benefit, as they are
charged a lower price. One example would be using a store loyalty card to get a sale price. If you dont have the card, you wont
get the decreased sale price. Another example would be movie theaters offering a discounted rate to students with student IDs.
Part 2:
1. An economic benefit of patents is that the system creates an incentive for inventors to come up with new ideas by giving an
inventor monopoly power over the invention? a cost of patents arises as no one else cannot use or improve the patented
invention without the patent holders permission. This may slow down creation of new ideas.
2. Tesla realized that if their mission is to see an increasing number of people driving electric cars, a whole industry must be
created around electric cars. This is more likely to happen if other inventors and firms have chance to develop and improve
related products, and this would have a positive impact on Tesla as well. For that reason, Tesla was willing to give up its patents.
Pharmaceutical industry would probably be hurt most without patents. Developing a new drug is extremely expensive and
lengthy, and without any protection an investment required for drug development would likely to be too risky to take for
pharmaceutical firms. Economists Michele Boldrin and David Levine, however, claim that even pharmaceutical industry could do
fine without patents if government would play a bigger role in drug development and research.
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Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
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Adam Crosser
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(https://canvas.iastate.edu/courses/60117/users/27930)
Jun 24, 2019
Hi Anni,
I think the pharmaceutical industry is a great example of where patents are commonly used. Unfortunately, I don’t know
enough about the industry to have an opinion one way or the other. In my field of software engineering patents would
certainly slow things down. However, fortunately, I have never run into issues with patents and would generally be against
them for my field of work. A big reason why I am able to be as efficient as I am in my field is by reusing libraries and code
written by others that are released publicly and can be reused in projects for free. This the reason that open source software
has been so successful as anyone can build off of an existing open source solution and then contribute their improvements
back into the project.
I think that the Tesla approach of releasing patents is a really interesting one. I think it does make sense in some ways since
by increasing the demand for electric cars they will also increase the demand for Tesla vehicles.
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Benjamin Huinker
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(https://canvas.iastate.edu/courses/60117/users/52735)
12:35am
Hello professor,
This discussion assignment was very interesting? it gave me a new perspective on how patents can have both benefits and
costs.
It was a bold move for Elon Musk to give up all of the Tesla patents. I have never heard of companies wanting to give up
patents in order to achieve a long term goal sooner. I would’ve expected all corporations to use patents to make as much
money as possible before the patents expire.
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Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
I am still not sure whether patents are good or bad for society overall, but the assignment was very educational on how
patents can affect the economy.
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Adam Crosser
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(https://canvas.iastate.edu/courses/60117/users/27930)
Jun 24, 2019
Price Discrimination:
I’ve experienced price discrimination when purchasing a vehicle at a car dealership. In these scenarios price is often negotiable
and the sales people will attempt to gauge how much you are able to pay by asking questions about your profession, etc.
The Case Against Patents:
1. What are the economic beenfits and costs of patents?
The economic benefits of patents are that it provides companies with incentives to conduct research and development because it
allows companies to protect their investment in that new technology and encourages people to try to come up with new
inventions.
The argument against patents is that it slows down innovation by making it difficult for others to expand on the ideas developed
by others. In this way it can be argued that patents slow down innovation. By setting electric car patents free it makes it easier for
others to d
evelop these technologies and start using electric cars. This increases demand for all types of electric cars including tesla
vehicles. It also helps tesla since when someone expands on a tesla invention they can potentially integrate it that expansion into
their own vehicles.
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?
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Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
Tesla is giving up its patents so that it is easier for e.g. grocery stores to put in place charging stations for electric vehicles
(because the charging interface is not patented, etc.) and it will make it easier to standardize components for electric vehicles
(e.g. ford and tesla can both use the same type of charging interface since it is now not restricted to only tesla vehicles due to a
patent).
Ultimately the goal is to increase adoption of electric vehicles and electric vehicle technologies by giving up control of the
patents. Increasing the demand and use of electric vehicles and electric vehicle technology in general also increases the
demand for teslas.
I can imagine that the Pharmaceutical industry would be hurt if patents were no longer considered to be valid. Some of these
companies charge very high prices for specific types of drugs because they are the only ones that can sell it. If anyone could
create their own version of the drug then supply would increase and cost would decrease. However, the companies that
originally developed the drug would make less money now (and potentially lose money depending on how much it cost to
develop the drug).
This is where the argument for patents comes into play is that if a company spends one billion dollars to develop a new
technology. It then releases the technology and it is widely used. However, a competitor then comes in and reverse engineers
the design (costing only two million dollars to do this) and starts creating almost identical clones of the product for a lower cost
(their average total cost curve will be lower since they didn’t spend the initial billion to develop the technology only the initial 2
million to reverse engineer the competitors product).
The argument against patents is that while this might be true the competitor could reverse engineer the product and start using
the technology but at the same time they could improve on it in order to differentiate their product from their competitors. This
would increase the rate of innovation as there would not be restrictions on who can improve on or build off of an existing
technology.
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Erica Gorden
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(https://canvas.iastate.edu/courses/60117/users/72946)
Yesterday
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Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
Hi Adam! I can see how buying a car in your answer to part one would be an example of price discrimination. Sales people
definitely will be gauging how much you are willing and able to spend, and negotiate different prices for different consumers.
I also agree that the Pharmaceutical industry would be hurt if patents no longer existed. However, if the government
intervened in the development phase, perhaps it wouldn’t be such an issue. Good job!
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Erica Gorden
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(https://canvas.iastate.edu/courses/60117/users/72946)
Yesterday
Part One
1. As detailed in the book price discrimination is the selling a good or service to different customers and charging different prices
to each customer. There are several types of price discrimination the first one being firstdegree price discrimination. This
type of price discrimination is when consumers are charged the price they are willing and able to pay for a good or service.
For a firm to implement first degree price discrimination they need to have fairly small marginal costs and fairly large fixed
costs. A personal example of firstdegree price discrimination is when I bought tickets for a concert. The person sitting next to
me, may have paid more or less than me depending on their willingness and ability to pay for the ticket. The next type of
price discrimination is seconddegree price discrimination, which is charging different prices per unit depending on the
quantity purchased, also known as block pricing. For a firm to implement this form of price discrimination, they need to have
people with varying price elasticities of demand. A bigger family might want to buy a product in bulk, while a single individual
may only want to buy one unit of the product, and by doing this, the company is able to maximize their profits. The final type
of price discrimination is thirddegree price discrimination, which is when the market is separated into groups based on their
elasticities of demand and charge different prices for the same good. To implement this kind of price discrimination it is also
necessary to have different elasticities of demand and the ability to identify and separate these groups. By doing this one
could increase prices for those with relatively inelastic demand and decrease prices for those with relatively elastic demand.
Part Two
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Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
1. Essentially as explained in the podcast, a patent is a way for inventors to protect their ideas, and basically allows them a 20
year monopoly in which anyone who wants to use their design or idea has to get their permission. The major benefit of
patents is inventors receive an incentive to come up with new ideas, and then they are able to protect their idea for years to
come. However, there are also costs that are associated with this. Once an idea is patented no other individual can work off
it, hindering advancement and possibly even better ideas.
2. One company who is moving to do away with patents is Tesla. Although this at first seems crazy, once mulled over it is
understandable why Elon Musk took the move to do so. Tesla has been working on developing the electric car, however they
alone can not create the industry. For the industry to really take off it is pertinent to have other people involved to do things
such as create more efficient batteries and install charging stations. As the podcast continued, they detailed that the industry
that would be most hurt by the removal of patents would be the pharmaceutical industry. Drug companies spend years
developing and testing new drugs, and without these patents other companies could wait until all of the hard work is done,
take the drug, and sell it for less making more profit by doing less of the work. However, the podcast also discussed how the
government could intervene in the expensive development of the drug and leave the testing to a drug company allowing them
to receive a portion of the profit. That being said although the removal of patents may not happen any time soon, or at all for
that matter, it is important to recognize the thoughts behind it encourage solutions to any problems that may come from it.
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Huanjie Chen
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Yesterday
Hi, Erica. I really like your wellorganized summary for the reason why Tesla gives up the patent and the rest of some related
reactions. I think you did a very great job of explaining why the pharmaceutical industry getting hurt. perfect work!
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Riley Smith
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Hi Erica, I agree that at first it seems crazy that a person/company would want to give up its patent(s)! I also agree that it is
necessary in Tesla’s case to give up its patents to allow for further innovation and the development of the rather small
electric car industry.
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Jeongin Moon
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Yesterday
Hi Erica,
I really like how you explained the parts and your thoughts on the company’s decision. Especially I like how you said that
companies can’t create the industries by themselves. Like how you said, they need different people to develop and innovate
the existing technologies to be efficient and grow the industries.
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Huanjie Chen
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(https://canvas.iastate.edu/courses/60117/users/58410)
Yesterday
part 1.
the firm is necessary to implement price discrimination so that the firm can increase the total profit or attract more consumers.
For example, airline companies will sell a certain amount of discount tickets to consumers. I had once bought a flight ticket which
is much expensive than the price what my friend bought because he bought the ticket right before two days of that flight. I guess
there were a lot of unsold tickets so that the company reduced the price and tried to sell more tickets to increase the profits.
part 2.
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Topic: Discussion on Market Structures (Module 6) (due Monday, July 1st) (5 points)
1. the economic benefits are promoting innovation, encouraging investment, more efficiency of resource use and helping
economic growth. The cost of patents is that the money to pay to the one who owns the patent. the amount of price depends on
different types of patents
2. the reason Tesla giving up its patents is for the sustainability of transport so that it will enlarge the size of the market, and the
result is increasing the profit. As a result, the demand for infrastructure increase, potentially, the buys will be hurt without patents
because as the infrastructure increases, the total average cost increase, so the price of the vehicles increase, meanwhile, the
demand for the vehicle increases, but as the price of vehicles increase the demand will decrease, so buys will be hurt.
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Jeongin Moon
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(https://canvas.iastate.edu/courses/60117/users/61968)
Yesterday
Part 1)
There are many conditions for the firms to implement price discrimination. One of the condition is the elasticity. The firms have to
make sure to know the price elasticity of the people’s demand and price according to that demand price. For instance, younger
generation have price inelasticity which allows the firms to charge higher for a product than the older generation who are more
elastic in price. Other condition is that firms have to have some form of monopoly on there product so that they are able to price
set and gain more profit from the product. Another condition is that firms have to make sure that the resale of their product does
not happen. For instance, while trying to purchase Microsoft applications, I was able to get a application for cheap or even a free
by providing a ID that I am indeed a student at Iowa State University. But because I have to prove myself with identification, no
other person can use my ID to redeem the application again.
Part 2)
1.
Economic benefit of patents is that people will have a incentive to create new things and innovate to improve the world and
economics. This will allow the world to develop and be more advance but also allowing the small creators to benefit from their
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creation without the worry of bigger corporation to take their ideas. But the cost of patents is that it limits who can use the ideas
to a single person or company. By limiting who can use the ideas, this will slow down innovation and opportunity for the others to
make the idea better and more efficient.
2.
Companies like Tesla is giving up its patent because at first, his goal was to make people drive electric cars in the future. But he
decided to give up the patents as even though their technologies in electric cars is very advance, there is still not many electric
cars on the road. He believes that because he has all the best technologies for electric cars, no one else is willing to innovate to
create their own version of electric cars to bring more option and competition. He believes by allowing others to create electric
cars with his technologies, more will be willing to create new types of cars and that will than also put more electric cars on the
road.
For the industries that will surely be affected by the no patent idea, like the podcast sa…
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