Financial Statements Economics 98 / 198 Fall 2007 Copyright 2007 Jason Lee.
Jason Potts_Evolutionary Economics of Copyright
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Transcript of Jason Potts_Evolutionary Economics of Copyright
Beyond Copyright Industries: Publishing and digital futures 21st Sept, QUT
evolutionary economics of copyright
monopoly rents vs. business model adaptation
Economics of IP (incentive, not asset)
Why many economists are against IP- static & dynamic arguments
Innovation, uncertainty and experimentation
Jason Potts, CCI
but…Economic growth caused by new ideas
fixed costs, free copying =
no incentive
maybe the competitive process will work ok…
Need IP to deal with this market failure
so…
…or
LEGISLATIVE SOLUTION
MARKET
SOLUTION
What is copyright/IP for?
• Incentive for novelty• Temporary monopoly• Fixed costs
• All else is rent
Not to create an asset
from the economic perspective
IP is not a form of property
IP is closer to a form of market protectionism
That’s why economists don’t like it so much. They are not fooled by the word ‘property’
IP is not intended to create property
But it does create long-lived rents
Who likes IP & why?
• Creators & companies like it, as an asset (property income)
• IP lawyers like it (service revenue)
• Consumers, Librarians, etc don’t (cost)
• But economists understand IP as an institutional incentive
– artificial monopoly (rent) as a mechanism to achieve an end
– institutional configurations are ‘technologies’
– competes with other ‘institutional technologies’
– they like it or not depending upon whether it works as an incentive
novelty under competition
What is this really all about?
Some say it can’t exist
Others say it can
either there is, or there is not, market failure in the incentive and appropriation mechanism for the production of new ideas that drives economic growth
… a testable proposition
most evidence is that ‘there is not…’
• Can we find weak IP regimes where new ideas drive economic growth?
Testable how? Validation: strong IP & growthFalsification: weak IP & growth
19C Switzerland (B&L 2006)Fashion industry (R&S 2006)China music (M&P 2009)German music (Handke 2009) Open source (Benkler 2006)
Romer P (2002) ‘When should we use intellectual property rights?’ American Economic Review, 92(2) 213-6.
Klein B, A Lerner, K Murphy (2002) ‘Intellectual property: Do we need it? The economics of copyright fair use in a networked world’ American Economic Review, 92(2) 205-8.
Liebowitz, S (1985) ‘Copying and Indirect Appropriability: Photocopying of Journals.’ Journal of Political Economy,95(5): 945-57.
Hirshleifer J (1971) ‘The Private and Social Value of Information and the Reward to Inventive Activity’ American Economic Review 61: 561-574.
Boldrin M, Levine K (2002) ‘The case against intellectual property’ American Economic Review: Papers & Proceedings, 92(2) 209-12.
Boldrin, M. Levine K (2005) “The Economics of Ideas and Intellectual Property”, Proceedings of the National Academy of Sciences 102, 1252-56.
http://c4sif.org/
Centre for the study of innovative freedom
What do these strong IP ‘counterfactuals’ have in common?
all outcomes of intense innovation-driven competition
First to marketNew business modelsReputation/branding effects
19C Switzerland Fashion industry China musicGerman music Open source
Novels in 19C USSoftware (most network)Drugs (!)Design …
i.e. ‘other’ appropriation mechanisms
But without IP, won’t people just copy the successful
ideas/businesses/works?
But without IP, won’t people just copy the successful
ideas/businesses/works?
How do you know what’s successful?
• Sold lots of copies• Been widely adopted• Made lots of money• Garnered reputation
Because they’ve already…
So … explain why we need copyright again?
now
Strength of IP laws
high
low
then
timeline
IP skepticism (pre-internet age) IP abolitionism (post-internet age)
Boldrin & Levine 2008
Landes & Posner 1989Plant
1934Hurt & Schuchman 1966
Leibowitz 1985Benkler, Boyle, et al 2002
Copying by professionals
Copying by amateurs
Protectionism ends
Globalization begins
now
Real cost of copying
high
low
then
…either the copyright system adapts to the natural advantage that has evolved [digital technology & internet] or it will perish
Francis Gurry, WIPO
IP skepticism (pre-internet age) IP abolitionism (post-internet age)
Two lines of economics against IP
• Neoclassical – not property, but monopoly rents
• Evolutionary/Austrian – not effective appropriation mechanism; other mechanisms
far more important, e.g. business models
• Analysis of dynamic gains (incentive to innovate) vs. static losses (monopoly pricing)Posner (2003)
Proponents of IP must argue that:
dynamic gains > static losses
Yet many economists think:
(1) the dynamic gains are mostly rents
Vaidhyanathan 2001, Klein, Lerner & Murphy 2002, Jaffe & Lerner 2006, Boldrin & Levine 2008
(2) there are even more losses
Landes & Posner 1989, Bessen & Raskind 1991, Wu 2006
The economic issue
Innovation & evolutionary economists think IP laws are broken too
No evidence IP works as an effective appropriation mechanism
• Dynamic competition• Dynamic competence• Costly routines• Complementary assets• Absorbtive capacity
These factors explain incentive to innovate
IPR relatively unimportant
Novelty incentive & appropriation
IPR a weak solution
Effects of uncertainty
IPR can compound the problem
due to new technology…
creative industries markets are characterized by
uncertainty
explains the
role of discovery & experimentationon the producer and consumer side
problem
solution
(1) Uncertainty in supply
evolving new business modelsthree examples…
strategy:
Tim Wu (2006)
centralizes industry structure & thus decision making
The problem with strong IP is that because it creates monopoly it also
That’s not good for experimentation
Potts & Montgomery (2010) on Chinese music industry (weak IP enforcement)
• business model adaptation works
– Same finding for German music industry (Handke 2009)
That is good for experimentation
Joe Karaganis, SSRC
“Our explanation is very simple: high prices for media goods, low incomes, and cheap digital technologies are the main ingredients of global media piracy. If piracy is ubiquitous in most parts of the world, it is because these conditions are ubiquitous.”
3 year, 6 country multipartner study on causes of piracy
This is what happens when single business models are applied globally
(2) Uncertainty in demand
• Social network markets
– When choice demands on choices of others
• Novelty bundling markets
– When multiple novelty is better than single
So…
strong IP can stymie business model adaptation & innovation, and also social learning in context of uncertainty
This is…
an unintended consequence that harms industry evolution