DOJ Lawyer Explores 'Copyright Freeconomics'; Suggests Copyright Needs To Change

from the surprising... dept

One of the more frustrating things about debates on copyright is how many more established lawyers in the government seem to refuse to recognize the reality of what's happening in the market and instead prefer to rely on disproved ideas such as that without strong copyright protection, we get less output or that there is no way to "compete with free." So it's a bit of a surprise to see a recent paper from John Newman, a Justice Department trial attorney discussing the nature of what he calls "copyright freeconomics."

Innovation has wreaked creative destruction on traditional content platforms. During the decade following Napster’s rise and fall, industry organizations launched litigation campaigns to combat the dramatic downward pricing pressure created by the advent of zero-price illicit content. These campaigns attracted a torrent of debate, still ongoing, among scholars and stakeholders — but this debate has missed the forest for the trees. Industry organizations have abandoned litigation efforts, and many copyright owners now compete directly with infringing products by offering licit content at a price of $0.

This sea change has ushered in an era of “copyright freeconomics.” Drawing on an emerging body of behavioral economics and consumer psychology literature, this Article demonstrates that, when faced with the “magic” of zero prices, the neoclassical economic model underpinning modern U.S. copyright law collapses. As a result, the shift to a freeconomic model raises fundamental questions that lie at the very heart of copyright law and theory. What should we now make of the established distinction between “use” and “ownership”? To what degree does the dichotomy separating “utilitarian” from “moral” rights remain intact? And — perhaps most importantly — has copyright’s ever-widening law/norm divide finally been stretched to its breaking point? Or can copyright law itself undergo a sufficiently radical transformation and avoid the risk of extinction through irrelevance?

I honestly don't think there's too much new or surprising in the report, though I'd argue that part of the problem is an improper definition of "classical economics." Though, I've long felt that the "behavioral economics" crowd tries to distinguish itself by setting up strawmen about what "classical economics" says -- and this report has a bit of that. That is, I don't think that the use of "free" in economics breaks classical economic models, unless you set up the model incorrectly, which I think Newman does a bit in this paper, leaving out additional variables beyond "cost" that go into the equation. That said, that's a nitpick: the overall point does actually stand. Free economics can well be described in classical economics or new behavioral economic models showing how free fits into a perfectly reasonable market, rather than destroying it. And, in the end, Newman seems to come to the same realization even if we disagree about how it fits into classical economics: free isn't horrifying, it's a part of the economic landscape, and there are ways that can be viewed as a good thing, and this report generally supports that view.

The other interesting bit of the report is Newman's suggestion that an interesting proposal for changing copyright laws that might actually make traditional "maximalists" and "minimalists" both happy is to increase more moral rights for copyright -- and allow copyright holders to effectively choose if they want to enforce the "economic" rights to exclude by going after statutory damages, or, alternatively, enforce the "moral" rights to protect their reputation. His argument is that this might fit better with the nature of content creation today:

Because some creators and distributors are now realistically motivated solely by non-pecuniary incentives while others are motivated by pecuniary ones, yet both groups often create the same “types” of works, segregating rights based on type of work (as does the current legal structure) is likely an inefficient means of incentivizing authorship and dissemination. Instead, copyright law could be altered such that copyright owners may choose to enforce one of two bundles of utilitarian-based rights: either the pecuniary-focused rights (reproduction, distribution, et al.) or the social-status-based rights (attribution and integrity). This structure would operate somewhat similarly to the current remedies structure, under which copyright owners can choose to pursue either actual damages (and/or lost profits) or statutory damages. Importantly, it would allow creators and distributors—who are in the best position to do so—to self-segregrate based on primary incentive type. Thus, such an enforcement structure may well be a much more efficient means of stimulating creative output than our current set of copyright laws.

I'm not convinced that this is really such a wise course of action, and I'm a bit nervous about expanding moral rights for a whole host of reasons. But it is an interesting thought exercise to wonder if a limited set of moral rights might limit crazy cases with ridiculous statutory damages -- giving copyright holders an alternative for what they're really after in at least a segment of copyright lawsuits.

But what's more interesting is that a DOJ lawyer would be exploring this topic at all. While Newman is explicit that these are his views alone, and do not represent the DOJ in any way, I think it's a good sign to see that at least one DOJ lawyer is grappling with this topic, rather than taking the traditional "the law is the law" view in which "free" is clearly bad and destructive towards the economy. Hopefully more of this kind of thinking and economic explorations filter through to others in the government as well.

Filed Under: behavioral economics, classical economics, copyright, economics, free

Behavioral Economist Dan Ariely Explains The Problem With The NY Times Paywall

from the anchored dept

David alerts us to behavioral economist Dan Ariely's take on the NY Times' plan for a paywall, noting that people are unlikely to pay for what they've been able to get for free in the past:

The main problem of this approach is that over the years of free access, the New York Times has trained its readers for years that the right price (or the Anchor) is $0 -- and since this is the starting point it is very hard to change it....

Because we're not very good at figuring out what we are willing to pay for different products and services, the initial prices that new products are presented with can have a long term effect on how much we are willing to pay for them. We basically can't figure out how much pleasure the New York Times gives us in terms of $ -- so we go back and pay the same price we have paid before. This means that getting people to pay for something that was free for a long time will be very challenging, but it also means that if the New York Times were to offer some new service at the same time that they start charging, they might be more likely to pull it off.

Indeed. It's a point that we've tried to make in the past as well. It's nearly impossible to successfully charge for something that was once free, but it's absolutely possible to charge for something new, something scarce, that is separate from (or perhaps enhanced by) the free stuff. That's why we had hoped the NY Times would be smart enough to set up a business model around offering something else of value, rather than just a paywall, but it chose to go in the other direction.

Filed Under: anchor prices, behavioral economics, dan ariely, economics, paywalls, value
Companies: ny times

How 'Free' Has Even More Value Than People Think It Should

from the and-so-it-goes dept

Earlier this year, we pointed to some of the psychological reasoning for those in the RIAA/MPAA's of the world (and their supporters) for arguing against giving stuff away for free, even when there was evidence that they could make more money doing so. In that case, psychological experiments showed that people don't act rationally when they think something is "unfair." That is, they'll take a worse absolute result, just to make sure that they're relatively better off.

Now there's a new book that just came out that highlights a related irrationality. This one is by behavioral economist Dan Ariely. Someone had told me a year ago to look out for Ariely's book, which I had forgotten about, but now that it's out, it appears to include discussions on some very interesting experiments. If you listen to the audio interview at that link, Ariely discusses an experiment he ran with children at Halloween. He first gave them all three Hershey kisses. Then he held up two Snickers bars -- one tiny one and one large one. He offered to trade them the small one for one kiss and the large one for two kisses. Most kids quickly made the trade for the larger Snickers bar -- which is a perfectly rational move.

He then changed the terms of the experiment. He offered to give kids the small Snickers bar for "free" or the large one for one Hershey kiss. Most kids now took the free small Snickers bar -- even though they are worse off in that case. Having two Hersheys kisses and the big Snickers bar providers more chocolate than three kisses and the small bar -- but the impact of "free" got them even more interested. Ariely ran more similar experiments (economist Tyler Cowen wrote about one recently) and found that again and again people overpay for free.

This is certainly an interesting finding, given all that we talk about the use of free in economics. If anything, this (bizarrely, I'll admit) makes the case even stronger for using free as a part of any business model. It suggests that people value something that's offered for free more than they should. That has enormous implications for the promotional value of "free." If you're using it that way, it actually increases the value relative to other things, despite the myth some people still have that if something is "free" it means it has no value. Anyway, Ariely's book, Predictably Irrational is now available. Ariely has also put up a blog about the book, though there's not much info there just yet.

Filed Under: behavioral economics, dan ariely, free, value

A Psychological Explanation For RIAA Short-Sightedness

from the would-rather-lose-money-than-let-someone-else-make-it dept

In all of the discussions we've had over various business models that could help make the entertainment industry even bigger than it is today, while embracing things like file sharing, we're always shocked to have entertainment industry execs and lobbyists come back with some sort of version "but that's not fair." We saw it when we tried to explain why questions about the economics of file sharing really shouldn't be seen as a moral issue, because if the economics works out with everyone being better off, the moral question should fall by the wayside. Yet, we were still told that it was a moral issue and a question of "fairness." This is true even if what we describe would make the industry more money. On an absolute basis, they would be better off. If you can make twice as much money, even if some people are "freeloading" and not paying anything, wouldn't that be a good thing? Yet, time and time again, we're told that "no" it would not be a good thing, because of those freeloaders. Universal Music CEO Doug Morris even admitted flat out that giving up 10 cents today to make a dollar later means that he's being taken advantage of for that 10 cents. These reactions are not rational.

At times it's been frustrating trying to understand why this is. We've often just assumed that it's caused by a general inertia: that is, it's not easy for someone who's had a successful existing business model to accept the idea that the market has changed and the business model needs to change. That requires effort and effort is not as much fun as coasting on inertia. However, reader Bill Corry writes in with another intriguing possibility. He points to a story in the LA Times discussing some recent behavioral economic studies on how people deal with fairness vs. rationality, suggesting that it explains the RIAA's actions. I'd actually seen all of the studies mentioned in the past, but hadn't associated them with the entertainment industry's struggles. The key part:

Consider one more experimental example to prove the point: the ultimatum game. You are given $100 to split between yourself and your game partner. Whatever division of the money you propose, if your partner accepts it, you each get to keep your share. If, however, your partner rejects it, neither of you gets any money.

How much should you offer? Why not suggest a $90-$10 split? If your game partner is a rational, self-interested money-maximizer -- the very embodiment of Homo economicus -- he isn't going to turn down a free 10 bucks, is he? He is. Research shows that proposals that offer much less than a $70-$30 split are usually rejected.

Why? Because they aren't fair. Says who? Says the moral emotion of "reciprocal altruism," which evolved over the Paleolithic eons to demand fairness on the part of our potential exchange partners. "I'll scratch your back if you'll scratch mine" only works if I know you will respond with something approaching parity. The moral sense of fairness is hard-wired into our brains and is an emotion shared by most people and primates tested for it, including people from non-Western cultures and those living close to how our Paleolithic ancestors lived.

So, perhaps the industry is to be forgiven. It's not that they're completely blind to the fact that they're giving up potentially millions of dollars in forgone profits from not embracing new models that also benefit "freeloaders." It's just that we're all hardwired to make bad economic decisions when that happens.

Filed Under: behavioral economics, business models, economics, riaa
Companies: riaa