The Hidden Economics of Food - Part 10: The Knowledge Monopoly

The World’s Most Valuable Recipe

Coca-Cola’s formula is supposedly locked in a vault in Atlanta. Only a few executives know the complete recipe. The secrecy is legendary—and deliberate.

The formula itself is probably not that remarkable. Competitors have reverse-engineered close approximations. What makes Coca-Cola valuable isn’t the literal formula—it’s the brand, the distribution network, and the intellectual property protections that prevent others from selling “Coca-Cola.”

This is a trade secret: information kept confidential to maintain competitive advantage. It’s one form of intellectual property.

But Coca-Cola reveals something broader about how the modern economy creates value—and who captures it.

The Economics of Ideas

Physical goods are “rivalrous”—if I eat an apple, you can’t eat that apple. Scarcity is natural.

Ideas are different. If I learn the Coca-Cola formula, you don’t lose it. Ideas can be shared infinitely without being depleted.

This creates a problem for capitalism. If ideas can be copied freely, how do you profit from them?

The solution: make ideas artificially scarce through law. Intellectual property—patents, copyrights, trademarks, trade secrets—gives owners the right to exclude others from using information.

This is a legal monopoly. The government grants the right to be the only seller.

The Justification

Intellectual property is justified on incentive grounds:

• Without patents, why would companies invest in R&D? Competitors would copy their inventions without bearing the research costs.

• Without copyrights, why would authors write? Publishers would copy their work without payment.

• Without trademarks, how would consumers know what they’re buying? Anyone could call their drink “Coca-Cola.”

The argument: short-term monopoly enables innovation that benefits everyone long-term. We accept higher prices and restricted access as the cost of incentivizing creation.

This argument has merit. It also has limits.

The Problems

Pharmaceuticals: Where IP Kills

Pharmaceutical patents create the starkest trade-off:

A drug might cost $1 to manufacture. With a patent, it sells for $1,000. People who can’t afford $1,000 don’t get the drug. Some die.

This isn’t hypothetical:

• HIV drugs were priced beyond African patients’ reach until generic competition arrived

• Insulin costs pennies to make but sells for hundreds of dollars in the US

• COVID vaccines were restricted by patents even as the pandemic raged

The incentive argument says this is acceptable: without patent protection, the drugs wouldn’t exist. But:

• Much pharmaceutical research is publicly funded

• Marketing budgets often exceed research budgets

• “Innovation” often means minor tweaks to extend patents

• Other incentive mechanisms (prizes, public research) could replace patents

The patent system privileges pharmaceutical company profits over human lives. This is a policy choice, not natural law.

Software: Where IP Makes No Sense

Software patents are notoriously problematic:

• Patents are granted for obvious ideas (“one-click purchasing”)

• Thickets of patents make innovation legally risky

• Large companies accumulate patents for defensive purposes

• Small companies can’t afford patent lawyers

Open-source software—created without patent protection—produces some of the world’s most important infrastructure: Linux, Apache, Python.

The software industry proves innovation happens without patents. Yet software patents persist, enriching lawyers and large corporations while taxing innovation.

Copyrights: Extended Beyond Reason

Copyright originally lasted 14 years (with optional renewal). It now lasts 70+ years after the author’s death.

No author ever thought, “I won’t write this book because my great-grandchildren won’t profit from it.” The extension has no incentive effect—it can’t incentivize authors who are already dead.

What it does:

• Locks up cultural heritage

• Prevents adaptation and reuse

• Creates legal uncertainty (many works have unclear copyright status)

• Enriches corporations that own old works

Mickey Mouse, created in 1928, was about to enter the public domain when Disney lobbied for copyright extension. The purpose was rent extraction, not innovation incentive.

Trade Secrets: The Coca-Cola Model

Trade secrets are information kept confidential. Unlike patents (which require disclosure), trade secrets work through concealment.

Coca-Cola’s formula is a trade secret. If anyone leaked it, they’d be liable. But if someone independently discovered it, they could use it.

Trade secrets create odd incentives:

• Companies invest in secrecy (locked vaults, compartmentalized knowledge) rather than disclosure

• Employees face legal risk for using knowledge they gained at work

• Reverse engineering is allowed, but expensive

The Coca-Cola formula isn’t especially valuable to humanity—it’s sugar water. But the same trade secret logic applies to:

• Manufacturing processes that could improve productivity globally

• Chemical formulas that could solve problems

• Business methods that could be shared

Keeping knowledge secret is privately profitable but socially wasteful.

Who Writes the Rules?

IP law is written by governments, often under heavy corporate lobbying:

Trade Agreements

American trade negotiators push for strong IP protections globally:

• TRIPS (Trade-Related Aspects of Intellectual Property) forced WTO members to adopt American-style patents

• Bilateral agreements impose even stronger IP requirements

• Developing countries lose policy flexibility

These agreements are negotiated in secret, with heavy corporate input and minimal public participation.

Patent Office Capture

Patent offices are funded by patent fees. They have incentives to grant patents, not reject them:

• Examiners are overworked and undertrained

• Companies submit massive applications designed to obscure

• Rejecting patents creates more work (appeals, litigation)

The result: patents are granted that shouldn’t be, creating legal landmines for innovation.

Corporate Influence

IP law is shaped by those who profit from strong IP:

• Pharmaceutical companies write drug patent rules

• Entertainment companies write copyright rules

• Tech giants shape software patent law

Those harmed by strong IP—consumers, developing countries, follow-on innovators—have less lobbying power.

Alternatives Exist

Intellectual property is one way to incentivize innovation. It’s not the only way.

Prizes

Instead of granting monopolies, governments could offer prizes for solving problems:

• Define the problem (a malaria vaccine, carbon capture)

• Award the prize to whoever solves it

• Put the solution in the public domain

This preserves innovation incentive while enabling access.

Public Research

Most basic research is publicly funded. Governments could fund more applied research and ensure results are publicly available.

The mRNA technology behind COVID vaccines came from publicly funded research. Private companies captured the profits and restricted access.

Open Source

The open-source movement proves that people create without monopoly incentives:

• Software: Linux powers most of the internet

• Knowledge: Wikipedia outperformed proprietary encyclopedias

• Science: Open journals challenge paywalled publishing

Not everything works this way. But the existence of vibrant open-source ecosystems refutes the claim that monopoly is the only path to innovation.

Shorter Terms

If patents and copyrights incentivize creation, shorter terms might be enough. 14 years seemed adequate in 1790. Why is 70+ years necessary now?

Shorter terms would balance incentive with access.

The Hidden Tax

Strong intellectual property is a hidden tax on everyone:

• Higher drug prices transfer from patients to pharma companies

• Copyright restrictions transfer from readers/viewers to rights holders

• Patent monopolies transfer from consumers to inventors (and their lawyers)

These transfers are invisible because they’re built into prices. You don’t see what you’d save if IP were weaker.

Estimates suggest Americans pay $1 trillion extra annually due to IP monopolies—larger than many explicit taxes.

What Coca-Cola Teaches

Coca-Cola’s secret formula is worth billions not because the formula is brilliant, but because the legal system makes it artificially scarce.

This is the logic of intellectual property: create artificial scarcity to enable profit. Sometimes this incentivizes innovation. Often it just restricts access to knowledge that should be shared.

The question isn’t whether IP should exist—it’s whether current IP rules serve the public interest or just powerful incumbents.

The evidence suggests the latter. IP law has been captured by those who profit from it, extended beyond any reasonable incentive justification, and imposed globally regardless of local conditions.

A can of Coca-Cola is cheap. The knowledge behind it is artificially expensive. And the pattern extends far beyond sugar water—to drugs, technologies, and ideas that could transform human welfare if they weren’t locked up for private profit.