Proprietary vs. Open Source

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    When large companies buy up smaller ones – is that good or bad? Does it represent the cartelization and aggregation of an industry? Does it mean that we are moving towards collectivization and away from individualization?

    What are we to make of “proprietariness” in invention and manufacturing? Is it bad for competition, and does it lock out innovation, or does it enhance and reward it?


    The extent of assets under the supervision of an entrepreneurial group, just like all other production decisions, is subject to the constraint of economic calculation. Larger combinations of assets are sustainable if they increase net worth, i.e., if the acquired assets have greater monetary value under the supervision of acquiring entrepreneurial group than they did under the supervision of the dis-investing entrepreneurial group. The market value of different combinations of assets under the control of an entrepreneurial group is determined by investors at large and not by either the acquiring or dis-investing entrepreneurial group.

    Moreover, for a business enterprise to remain efficient once its combination of assets is too large for the entrepreneurial group that formed it to directly oversee it, the entrepreneurs must divide it into profit centers and hire managers over each center with the instruction to earn profit and pay each manager a share of the profit earned by the center he oversees. In this way, collectivism is not implied in bigness of private enterprise.

    In the unhampered market economy, if an enlarging enterprise or an emerging cartel of enterprises is becoming less efficient in satisfying consumer preference, then the monetary value of the assets of these enterprises will decline. Profit and equity can then be earned by breaking up combination. In contrast, if government intervention supports enlarging enterprises, then inefficiency and collectivism (or at least, bureaucratization) will go along with bigness.


    The effect Intellectual Property has on the overall extent of invention and innovation is unclear. What we can conclude from economic theory is that the composition of invention and innovation will be different in a world with IP compared to one without IP.

    In a world without IP, the monetary gain from invention and innovation will accrue to entrepreneurship instead of being imputed to patented machines or copyrighted works. Inventors and innovators earn profit from their creativity in the period before other entrepreneurs enter the field and to the extent that they cater their products to satisfy consumer preferences more fully than those of other entrepreneurs.

    In a world with IP, the monetary gain from inventions and innovations will accrue to the goods receiving IP protection. But this extra monetary value will not stimulate production of the same goods by other entrepreneurs, since IP makes doing so a crime, but on alternative inventions and innovations that do not violate IP but produce similar goods that attempt to satisfy the same consumer preferences.

    You might take a look at the Mises Institute wiki on IP:

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