Beyond Copyright Industries: Publishing and digital futures                                  21st Sept, QUT<br />
evolutionary economics of copyrightmonopoly rents vs. business model adaptation<br />Economics of IP   (incentive, not ass...
Economic growth caused by new ideas<br />but…<br /> fixed costs, free copying = no incentive<br />so…<br />Need IP to deal...
from the economic perspective<br />What is copyright/IP for?<br />Incentive for novelty<br />Temporary monopoly<br />Fixed...
IP is not a form of property <br />IP is closer to a form of market protectionism<br />That’s why economists don’t like it...
IP is not intended to create property<br />But it does create long-lived rents<br />
Who likes IP & why?<br />Creators & companies like it, as an asset (property income)<br />IP lawyers like it (service reve...
What is this really all about?<br />novelty under competition<br />Some say it can’t exist<br />Others say it can<br />
	either there is, or there is not, market failure in the incentive and appropriation mechanism for the production of new i...
Testable how?<br />Validation: strong IP & growth<br />Falsification: weak IP & growth<br />Can we find weak IP regimes wh...
Hirshleifer J (1971) ‘The Private and Social Value of Information and the Reward to Inventive Activity’ American Economic ...
19C Switzerland<br />Fashion industry<br />China music<br />German music<br />Open source<br />Novels in 19C US<br />Softw...
But without IP, won’t people just copy the successful ideas/businesses/works?<br />
But without IP, won’t people just copy the successful ideas/businesses/works?<br />
How do you know what’s successful?<br />Because they’ve already…<br />Sold lots of copies<br />Been widely adopted<br />Ma...
Strength of IP laws<br />high<br />low<br />then<br />now<br />
timeline<br />Boldrin & Levine 2008<br />Landes & Posner 1989<br />Plant 1934<br />Hurt & Schuchman 1966<br />Benkler, Boy...
Real cost of copying<br />high<br />low<br />then<br />now<br />
IP skepticism (pre-internet age)<br />IP abolitionism (post-internet age)<br />	…either the copyright system adapts to the...
Two lines of economics against IP<br />Neoclassical <br />not property, but monopoly rents<br />Evolutionary/Austrian <br ...
The economic issue<br />Analysis of dynamic gains (incentive to innovate) vs. static losses (monopoly pricing)<br />	Posne...
Innovation & evolutionary economists think IP laws are broken tooNo evidence IP works as an effective  appropriation mecha...
Novelty incentive & appropriation<br />IPR a weak solution<br />Effects of uncertainty<br />IPR can compound the problem<b...
creative industries markets are characterized byuncertaintyexplains therole of discovery & experimentationon the producer ...
(1)	Uncertainty in supply <br />evolving new business models<br />strategy:<br />three examples…<br />
Tim Wu (2006)<br />The problem with strong IP is that because it creates monopoly it also<br />	centralizes industry struc...
Potts & Montgomery (2010)on Chinese music industry (weak IP enforcement)<br />business model adaptation works<br />Same fi...
Joe Karaganis, SSRC<br />3 year, 6 country multipartner study on causes of piracy<br />	“Our explanation is very simple: h...
(2)		Uncertainty in demand<br />Social network markets<br />When choice demands on choices of others<br />Novelty bundling...
So…<br />strong IP can stymie business model adaptation & innovation, and also social learning in context of uncertainty<b...
Jason Potts_Evolutionary Economics of Copyright
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Jason Potts_Evolutionary Economics of Copyright

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Beyond Copyright Industries: Publishing and Digital Futures Symposium, 21 September, QUT

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Jason Potts_Evolutionary Economics of Copyright

  1. 1. Beyond Copyright Industries: Publishing and digital futures 21st Sept, QUT<br />
  2. 2. evolutionary economics of copyrightmonopoly rents vs. business model adaptation<br />Economics of IP (incentive, not asset)<br />Why many economists are against IP<br /> - static & dynamic arguments<br />Innovation, uncertainty and experimentation<br />Jason Potts, CCI<br />
  3. 3. Economic growth caused by new ideas<br />but…<br /> fixed costs, free copying = no incentive<br />so…<br />Need IP to deal with this market failure<br />LEGISLATIVE SOLUTION<br />MARKET SOLUTION<br />maybe the competitive process will work ok… <br />…or <br />
  4. 4. from the economic perspective<br />What is copyright/IP for?<br />Incentive for novelty<br />Temporary monopoly<br />Fixed costs<br />All else is rent<br />Not to create an asset <br />
  5. 5. IP is not a form of property <br />IP is closer to a form of market protectionism<br />That’s why economists don’t like it so much. They are not fooled by the word ‘property’<br />
  6. 6. IP is not intended to create property<br />But it does create long-lived rents<br />
  7. 7. Who likes IP & why?<br />Creators & companies like it, as an asset (property income)<br />IP lawyers like it (service revenue)<br />Consumers, Librarians, etc don’t (cost)<br />But economists understand IP as an institutional incentive<br />artificial monopoly (rent) as a mechanism to achieve an end<br />institutional configurations are ‘technologies’<br />competes with other ‘institutional technologies’<br />they like it or not depending upon whether it works as an incentive<br />
  8. 8. What is this really all about?<br />novelty under competition<br />Some say it can’t exist<br />Others say it can<br />
  9. 9. 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<br />… a testable proposition<br />most evidence is that ‘there is not…’<br />
  10. 10. Testable how?<br />Validation: strong IP & growth<br />Falsification: weak IP & growth<br />Can we find weak IP regimes where new ideas drive economic growth?<br />19C Switzerland (B&L 2006)<br />Fashion industry (R&S 2006)<br />China music (M&P 2009)<br />German music (Handke 2009) <br />Open source (Benkler 2006)<br />
  11. 11. Hirshleifer J (1971) ‘The Private and Social Value of Information and the Reward to Inventive Activity’ American Economic Review 61: 561-574.<br />Liebowitz, S (1985) ‘Copying and Indirect Appropriability: Photocopying of Journals.’ Journal of Political Economy,95(5): 945-57.<br />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.<br />Romer P (2002) ‘When should we use intellectual property rights?’ American Economic Review, 92(2) 213-6.<br />Boldrin M, Levine K (2002) ‘The case against intellectual property’ American Economic Review: Papers & Proceedings, 92(2) 209-12.<br />Boldrin, M. Levine K (2005) “The Economics of Ideas and Intellectual Property”, Proceedings of the National Academy of Sciences 102, 1252-56.<br />http://c4sif.org/<br />Centre for the study of innovative freedom<br />
  12. 12. 19C Switzerland<br />Fashion industry<br />China music<br />German music<br />Open source<br />Novels in 19C US<br />Software (most network)<br />Drugs (!)<br />Design <br />…<br />What do these strong IP ‘counterfactuals’ have in common?<br />all outcomes of intense innovation-driven competition<br />First to market<br />New business models<br />Reputation/branding effects<br />i.e. ‘other’ appropriation mechanisms<br />
  13. 13. But without IP, won’t people just copy the successful ideas/businesses/works?<br />
  14. 14. But without IP, won’t people just copy the successful ideas/businesses/works?<br />
  15. 15. How do you know what’s successful?<br />Because they’ve already…<br />Sold lots of copies<br />Been widely adopted<br />Made lots of money<br />Garnered reputation<br />So … explain why we need copyright again?<br />
  16. 16. Strength of IP laws<br />high<br />low<br />then<br />now<br />
  17. 17. timeline<br />Boldrin & Levine 2008<br />Landes & Posner 1989<br />Plant 1934<br />Hurt & Schuchman 1966<br />Benkler, Boyle, et al 2002 <br />Leibowitz 1985<br />IP skepticism (pre-internet age)<br />IP abolitionism (post-internet age)<br />Copying by professionals<br />Copying by amateurs<br />Protectionism ends<br />Globalization begins<br />
  18. 18. Real cost of copying<br />high<br />low<br />then<br />now<br />
  19. 19. IP skepticism (pre-internet age)<br />IP abolitionism (post-internet age)<br /> …either the copyright system adapts to the natural advantage that has evolved [digital technology & internet] or it will perish<br />Francis Gurry, WIPO<br />
  20. 20.
  21. 21. Two lines of economics against IP<br />Neoclassical <br />not property, but monopoly rents<br />Evolutionary/Austrian <br />not effective appropriation mechanism; other mechanisms far more important, e.g. business models<br />
  22. 22. The economic issue<br />Analysis of dynamic gains (incentive to innovate) vs. static losses (monopoly pricing)<br /> Posner (2003) <br />Proponents of IP must argue that:<br /> dynamic gains > static losses<br />Yet many economists think:<br />the dynamic gains are mostly rents<br />Vaidhyanathan 2001, Klein, Lerner & Murphy 2002, Jaffe & Lerner 2006, Boldrin & Levine 2008<br />(2) there are even more losses<br />Landes & Posner 1989, Bessen & Raskind 1991, Wu 2006<br />
  23. 23. Innovation & evolutionary economists think IP laws are broken tooNo evidence IP works as an effective appropriation mechanism<br />Dynamic competition<br />Dynamic competence<br />Costly routines<br />Complementary assets<br />Absorbtive capacity<br />These factors explain incentive to innovate<br />IPR relatively unimportant<br />
  24. 24. Novelty incentive & appropriation<br />IPR a weak solution<br />Effects of uncertainty<br />IPR can compound the problem<br />due to new technology… <br />
  25. 25. creative industries markets are characterized byuncertaintyexplains therole of discovery & experimentationon the producer and consumer side<br />problem<br />solution<br />
  26. 26. (1) Uncertainty in supply <br />evolving new business models<br />strategy:<br />three examples…<br />
  27. 27. Tim Wu (2006)<br />The problem with strong IP is that because it creates monopoly it also<br /> centralizes industry structure & thus decision making<br />That’s not good for experimentation<br />
  28. 28. Potts & Montgomery (2010)on Chinese music industry (weak IP enforcement)<br />business model adaptation works<br />Same finding for German music industry (Handke 2009)<br />That is good for experimentation<br />
  29. 29. Joe Karaganis, SSRC<br />3 year, 6 country multipartner study on causes of piracy<br /> “Our explanation is very simple: high prices for media goods, low incomes, and cheap digital technologies are the main ingredients of global media piracy.<br /> If piracy is ubiquitous in most parts of the world, it is because these conditions are ubiquitous.”<br />This is what happens when single business models are applied globally<br />
  30. 30. (2) Uncertainty in demand<br />Social network markets<br />When choice demands on choices of others<br />Novelty bundling markets<br />When multiple novelty is better than single<br />
  31. 31. So…<br />strong IP can stymie business model adaptation & innovation, and also social learning in context of uncertainty<br />This is…<br />an unintended consequence that harms industry evolution<br />

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