Archive for January, 2007

There is much discussion on Slashdot about a new cancer drug that may never get on the market because it’s not eligible for a patent. Because getting a drug past the FDA costs up to a billion dollars, no drug company is willing to put up the costs when it can’t secure a monopoly. Most readers blamed capitalism for this. My response:

The problem is that drug approval costs so much. The major drug companies are happy with this – a billion dollars is too much for any innovative new startups to get to market. This is not the fault of capitalism, but the opposite – of government interventionism. In a free market, competing private organizations would decide when products are safe, and consumers would be free to choose what risks to take.

By contrast, the FDA creates giant monopolies that exclude competition by lobbying the government for more regulations and “safety controls” to raise barriers to entry, while millions of people die because innovative new medicines and treatments never had a chance.

Is it reasonable to expect all high-tech products coming out today to be cheaply available in the future?

Of course it’s a truism nowadays that electronics are getting better and cheaper all the time, but I wonder if we can generalize to the following argument:

Consumer electronic products (I am speaking mostly about audio/video/computer products) have three somewhat unique properties. First, they are relatively low bandwidth and low power, due to the hardware limitations of homes and consumption by a few people. Second, they are mass-produced. Third, they are mostly information products, which means that are not limited to any particular form of material.

These properties are especially suitable to rapid innovation and a trend towards automation of production. The trend has accelerated with the shift from analog to digital, which makes data integrity much easier. The key to the process is that increasing automation shifts production costs from manufacturing and materials to design. More and more of a products retail costs becomes intellectual property. For example, low-end DVD players can be found for under $30. I read somewhere that the licensing required to decode DVDs alone costs about $20. (This is also about the cost of a DVD plug-in for Windows Media Player.)

Are the any inherent cost factors I’m overlooking?

Let me put the question another way: today or soon, a $3,000 LCD TV might cost $30 in raw materials and $30 in labor, and the rest in intellectual property. (Those numbers are WAGs.) Is there any reason to think that it would not be $60 in 15 years, when the IP has expired and/or been reverse-engineered?

Discuss here.

This would be funny if it weren’t true.