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Abstract:
This is a lengthy critique of the empirical findings, factual claims, and logic of the empirical examination of file-sharing by Felix Oberholzer-Gee and Koleman Strumpf. It is written for a general audience and provides details of calculations, data, and industry measurements that allow replication by the reader whenever possible. It provides much of the detail for the shorter, more academic version that is also posted.

file sharing, mp3, copying, copyright

Abstract:
This paper investigates the impact of unauthorized downloading of MP3 files on the recording industry. Although the no longer extant Napster was the most famous system used for such downloading, its progeny have continued to allow millions of music listeners to download music (and other) files without remuneration to the copyright owners. Using data on the historical sales of prerecorded music I examine in detail the recent decline in record sales and attempt to gauge the importance of various alternative factors that have been put forward to explain this decline. I conclude that the evidence supports a claim that MP3 downloads decrease sales.

Copyright, MP3, Downloads

Abstract:
This paper examines the history of the QWERTY typewriter keyboard, often put forward as the archetypical case of markets choosing the wrong standard. Contrary to the claims made by Paul David and Brian Arthur, we find virtually no evidence to support a view that QWERTY is inferior to DVORAK. Instead, using records of typing experiments, studies by ergonomicists, and examining the historical record of competition among different keyboard designs back when QWERTY first became dominant, we conclude that QWERTY is about as good a design as any alternative.

standards, compatibility, lock-in, qwerty, dvorak

Abstract:
This paper examines the relationship between the research impact of Business Schools, as measured by citations per capita adjusted by area norms, and rankings in leading magazines. Recent attempts by magazines to include measures of research impact appears to lower the correlation between magazine ratings and research influence.

As a byproduct of this analysis I create rankings of approximately 60 business schools (including the top 50). I also rank functional areas, listing the top 15 schools for each field. A chart of faculty citations by area and percentile provides some insight as to distribution of research influence.

Although a listing of the most highly cited individuals is obviously a by-product of this work, that list is not included in the paper.

business school rankings, citations, magazine rankings, research

Abstract:
Why did the mortgage market melt-down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be? It is the thesis of this paper that, in an attempt to increase homeownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s. The decline in mortgage underwriting standards was universally praised as an 'innovation' in mortgage lending by regulators, academic specialists, GSEs, and housing activists. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The bubble increased the number of housing speculators with estimates indicating that one quarter of all home sales were speculative sales prior to the bubble bursting. The recent rise in foreclosures is not related to the subprime/prime distinction since both markets had similar size increases in foreclosures that occurred at exactly the same time. Instead, the adjustable-rate/fixed-rate distinction is the key to understanding the rise in foreclosures. This is consistent with speculators turning and running when housing prices stopped rising. It is not consistent with the nasty-subprime-lender hypothesis currently considered to be the cause of the mortgage meltdown.

mortgages, meltdown. foreclosure, flexible lending, defaults, subprime

Abstract:
The impact of copying, in the form of file-sharing, has become a stormy policy issue. Previous copying technologies have mostly failed to live up to the extravagant predictions of harm that arose with those new technologies although precise measurements of copying's impact was rarely accomplished or attempted. One impediment to measuring the impact of copying with prior technologies was the difficulty of measuring copying activity. File-sharing is the newest technology for making copies and carries with it the possibility of more precise measurement of copying than has been possible in the past. This paper examines the measurement of file-sharing activity, the theory of file-sharing's likely impact, and the impact of file-sharing. Analysis of various data sets indicate that they do not yet live up to their hoped for precision. Data limitations not withstanding, the evidence seems compelling that file-sharing is responsible for the recent large decline in CD sales for which it has been blamed.

Copying, copyright, mp3, file sharing, piracy, peer to peer

Abstract:
The case of Eldred v. Ashcroft, which sought to have the Copyright Term Extension Act (CTEA, aka Sonny Bono Copyright Act) found unconstitutional, was recently argued before the Supreme Court. A remarkable group of seventeen economists including five Noble laureates, representing a wide spectrum of opinion in economics, submitted an amicus curie brief in support of Eldred. The economists condemned CTEA on the grounds that the revenues earned during the extension are so heavily discounted that they have almost no value, while the extended protection of aged works creates immediate monopoly deadweight losses and increases the costs of creating new derivative works. More important, we believe, than the particulars of this case, is the articulation of the economic issues involved in copyright extension. The articulation of those issues is not well framed in the brief. Nor is the case as one sided as the Eldred economists have claimed. First, private ownership of creative works may internalize potentially important externalities with respect to the use of existing works and the creation of derivative works. Second, the Eldred economists neglect the elasticity of the supply of creative works in their analysis, focusing instead solely on the benefits received by authors, leading to potential underestimation of additional creativity that confers benefits immediately. Third, the Eldred economists neglect certain features of copyright law, such as fair use, the distinction between idea and expression, and the parody exemption, which mitigate the costs of copyright. Finally, we present data that counters a common claim that copyright extension so far out in the future can have little effect on creativity. The small fraction of books that have the majority of commercial value when they are new appear to remain valuable for periods of time that are consistent with the expanded term of copyright under CTEA.

Copyright, network effects, eldred, bandwagon, snob, intellectual property

Abstract:
This paper examines several software markets in the hopes of testing various hypotheses that have been put forward in the literature on network effects. Our primary interest focuses on the possibility of lock-in by inferior products due to network effects. We also examine whether or not these markets provide evidence for winner-take-all results and tipping. We use a case method approach, examining product quality, market shares and prices in the context of major software application markets. We find no support for the lock-in hypothesis, no support for tipping, but support for winner-take-all. It is unclear, however, whether this winner-take-all result is due to network effects or other factors such as instant scalability or economies to scale. We also find that price seems to be play an important role in generating market share only in consumer markets. As a by-product of this work we are able to examine Microsoft's track-record in these markets. We conclude that Microsoft has followed a low price strategy, more so after they have achieved large market shares than while they were attempting to wrest market share from other firms.

Abstract:
This paper surveys the extant literature on the impact of file-sharing. It begins by examining the theory behind the impact of file-sharing. One novelty from this analysis is the finding that the effect of 'sampling' of copyrighted materials can be expected to have a negative impact on copyright owners, quiet the opposite of the impact normally assumed. Overall, although one can create hypothetical situations where network effects might allow file-sharing to be beneficial to copyright owners, the expectation that file-sharing would harm copyright owners appears a far more realistic outcome. The analysis then turns to the empirical work that has been performed to date. The various approaches are critiqued and compared. Although much of this literature is preliminary, most of the conclusions are consistent with one another, although the results are not unanimous. I then posit some explanations for the variations in results and conclude that the evidence to date strongly suggests that file-sharing harms the sound recording industry.

Filesharing, peer to peer, downloading, network effects, mp3

Abstract:
This is a followup paper to an earlier paper of mine estimating the costs to developers of a Microsoft breakup. It responds to papers by Levinson, Romaine, and Salop (lrs.pdf) and Lenard (lenard.doc). Among other things, this paper examines the changes in the windows operating system and explains why, if broken into three competing versions, they must lose complete compatibility, imposing additional costs on developers. It also explains why these extra development costs are deadweight losses.

Other papers related to the Microsoft Case:

"Creating Competition in the Market for Operating Systems: A Structural Remedy for Microsoft" by Thomas M. Lenard.

"The Flawed Fragmentation Critique of Structural Remedies in the Microsoft Case" by Robert J. Levinson, R. Craig Romaine, and Steven C. Salop.

"Breaking Windows: Estimating Some Costs of Breaking up Microsoft Windows" by Stan J. Liebowitz.

Our database includes more than 20 other papers about the Microsoft case. To find them, please use an "abstract body" search,. and enter "Microsoft" as the search term.

Abstract:
New Internet-based technologies appear to threaten the ability of copyright owners to collect revenues for their intellectual creations, as epitomized by the recent public trials and tribulations experienced by Napster. As a response, new legislation against pirating and new technologies to protect intellectual products have arisen. These new technologies and counter-technologies have each attracted attention and analysis, sometimes bordering on the apocalyptic, from competing camps. The basic issue, whether technologies that enhance the ability to create unauthorized copying are destructive to the principles of copyright, is not a new one, however. Technologies that make it easier to pirate copyrighted materials have undergone economic examination for over two decades. Prior analysis, and prior experience, has indicated that the previous generations of copying technologies have not had dire consequences for copyright owners. This paper, after examining a history of previous copying technologies, examines the question as to whether new Internet copying technologies are actually likely to be different from the prior generations of copying technologies in being likely to destroy the value of the intellectual property rights, and concludes that the answer is yes, unless consumers are extremely law abiding. It then examines that evidence that has been put forward to support a claim that Napster was destructive of the revenues of CD industry, and concludes that the evidence does not support such a finding. I then explain why it is that the negative impacts of Napster were unlikely to have been felt at the time these examinations were undertaken. Finally, the analysis examines the impact of a possible market-based solution to this potential problem, based on new anti-piracy technologies known as digital rights management. This technology not only promises to make copying harder, but also allows the copyright owner to charge tiny micropayments for various degrees of use of the product. This extra control by copyright owners over the usage of the copyrighted material has set off a firestorm of controversy by individuals concerned that traditional 'fair-use' of a product will disappear and further claiming that digital rights management will lead to economic inefficiency. I show that digital rights management, contrary to these claims, does not eliminate fair use and is likely to enhance economic efficiency. Nevertheless, attempts by government to force the adoption of anti-copying technology appear misguided.

copyright, fair-use, napster, peer to peer, networks, intellectual property

Abstract:
Although previous forms of copying have been found to often have benign effects on copyright owners the rise in file-sharing has coincided with a steep decline in the sale of sound recordings. This paper attempts to empirically examine the extent, if any, to which file-sharing has caused the decline in record sales. Using a data set for 99 American cities containing information on Internet use, record sales, television viewing, radio listening, and other demographic variables, an econometric analysis is undertaken to examine the relationship between record sales and file-sharing, as proxied by Internet use, from 1998 to 2003. First, we find that the Internet itself reduces time spent on other entertainment activities, but only by a small amount. We then subtract this generic Internet impact from the overall Internet impact and conclude that the decline associated with that component of Internet use that we can attribute to file-sharing indicates that file-sharing has caused the entire decline in record sales and appears to have vitiated what otherwise would have been growth in the industry. Looking at sales in individual musical genres reinforces the primary conclusion since those genres that seem most likely to fall prey to file-sharing have the strongest measured negative impact from Internet usage.

file-sharing, grokster, napster, copyright, pirating, copying, television, radio, internet

Abstract:
Warning: This is not an academic paper, but a relatively short applied advocacy article for non economists. Because of the high level of interest in the topic, I thought it might be worthwhile to make it available on the Social Science Research Network Library.

This article attempts to roughly estimate one of the costs of breaking Microsoft Windows operating system into three components. It is found that developers are likely to incur extra costs of $30 billion over 3 years.


Other papers related to the Microsoft Case:

"Creating Competition in the Market for Operating Systems: A Structural Remedy for Microsoft"
by Thomas M. Lenard.

"The Flawed Fragmentation Critique of Structural Remedies in the Microsoft Case"
by Robert J. Levinson, R. Craig Romaine, and Steven C. Salop.

"A Fool's Paradise: The Windows World After a Forced Breakup of Microsoft"
by Stan J. Liebowitz.

Our database includes more than 20 other papers about the Microsoft case. To find them, please use an "abstract body" search,. and enter "Microsoft" as the search term.

Abstract:
Unlike television broadcasters, who must negotiate with the copyright owners before they can broadcast movies, radio broadcasters need not negotiate with the copyright holders for the sound recordings broadcast on radio. In the United States radio broadcasters have no obligations whatsoever to the copyright owners of the sound recordings (although they do have obligations to the copyright holders of the music contained in the sound recording). The reason for this discrepancy appears to be that radio broadcasters have argued, and it is generally accepted, that radio play benefits record sales and thus there is no need for radio broadcasters to purchase the rights to broadcast the sound recording. This impact of radio play on record sales is commonly referred to as a "symbiotic" relationship between these two industries. Yet there appears to be no systematic examination of this relationship. In this paper I present evidence indicating that radio play does not benefit overall record sales. There are obvious implications for copyright. I also examine, by way of comparison, television's negative impact on the movie industry.

Radio, Record Industry

Abstract:
Radio broadcasters need not negotiate in a free market with the copyright holders of sound recordings to be able to broadcast those sound recordings on radio. This is unlike television broadcasters, who must negotiate with movie copyright owners before they can broadcast the movies. In some instances (the United States, for instance) radio broadcasters have no obligations whatsoever to the copyright owners of the sound recording (as opposed to the copyright owners of the music). In other instances the radio broadcasters must pay a performance right fee for broadcasting the sound recordings, but these fees are determined by governmental or judicial agencies and need not bear any relationship to what negotiated rates would be. The reason for the weaker copyright protection on sound recordings relative to movies appears to be that radio broadcasters have argued, and it is generally accepted, that radio play benefits record sales and thus there is less need for radio broadcasters to purchase the rights to broadcast the sound recording. This impact of radio play on record sales is commonly referred to as a "symbiotic" relationship between these two industries and is often mentioned by radio broadcasters as a reason for keeping rates low, at hearings to set copyright payments. Yet there appears to be no systematic examination of this relationship. In this paper I present evidence indicating that radio play does not appear to benefit overall record sales. There are obvious implications for copyright since the lack of a symbiotic relationship implies a higher expected negotiated payment for the copyright on sound recordings. I also examine, by way of comparison, television's negative impact on the movie industry.

radio, television, sound recordings, records, copyright, internet radio

Abstract:
This is a report performed for the Canadian government in 1981 on the impact of copying (photocopying) on copyright holders. As far as I know, it was the first theoretical claim that copying might not hurt copyright holders, and might even benefit them, due to the concept of indirect appropriability. Although some of this material later appeared in articles in the JPE and AER, this is a more complete treatment focused on the copying issue. This report proposes a fairly simple model to explain what happens in markets where copying occurs. The key parameters turn out to be the variability in the number of copies made from each original, the degree of substitutability between the original and the copy, and whether or not the copyright holder can engage in price discrimination. Anyone interested in the issue of copying in the Internet era, or who wants to and be able to analyze behavior such as that associated with Napster, will want to read this.

Abstract:
Through a stroke of luck, a referee report in the review process at the JPE has been positively identified as the Oberholzer-Gee/Strumpf (O/S) response to my earlier comment. Regardless of the response's provenance, what counts is whether it solidly refuted my comment. This 'sequel' analyzes the O/S response. The O/S response only deals with four of the nine points discussed in my comment, leaving the five remaining critiques unchallenged. The conclusion of my review is that the O/S response fails as a defense of these four points and contains many of the same types of errors that marred their original paper. This sequel also discusses the history of this dispute including O/S' various reasons for not making their data available. Finally, this sequel provides full documentation on the JPE's decision not to publish the comment.

downloads, mp3, file sharing, replication, internet, copying

Abstract:
This paper examines the economic logic underlying bundles and tie-in sales and uses the lessons learned from that examination to analyze seven specific instances of bundling that have been the subject of antitrust scrutiny or other policy initiatives. Of particular interest are products that are nonrivalrous in consumption, making all-you-can-eat pricing a viable candidate for efficiency. The main economic points are the following: À-la-carte pricing may populate economic models, but most products are bundles. They are bundles because bundles are generally more efficient. Tie-in sales are much less common and often not properly understood in textbook discussions. Market foreclosure, the principal efficiency concern with tying and bundling, is likely to be exceedingly rare. The seven instances of bundling (ties) examined in the paper are: cable television; patent pools; blanket licenses; iPods and iTunes; telephones; music albums and songs; operating systems and component programs.

Abstract:
This paper examines the economic logic underlying bundles and tie-in sales and uses the lessons learned from that examination to analyze seven specific instances of bundling that have been the subject of antitrust scrutiny or other policy initiatives. We are particularly interested in products that are non-rivalrous in consumption, making all-you-can-eat pricing a viable candidate for efficiency. Our main economic points are the following: A la carte pricing may populate economic models but most products are bundles; they are bundles because bundles are generally more efficient. Tie-in sales are much less common and, we believe, not properly understood in textbook discussions. Market foreclosure, the principal efficiency concern with tying and bundling, is likely to be exceedingly rare. The seven instances of bundling (ties) examined are: cable television; patent pools; blanket licenses; iPods and iTunes; telephones; music albums and songs; and operating systems and component programs.

bundles, tie-in sales, antitrust, bundling, foreclosure, cable television

Abstract:
Why did the dot.coms burn and die? The answer is that they followed the advice given to them by a set of economists preaching that being first to market was the key to success thanks to lock-in effects. I explore these events and this thinking in this paper.

network effects, lock-in, dot.coms, ecommerce, internet

Abstract:
This paper undertakes an econometric investigation of the impact of radio play on sales of sound recordings using a sample of American cities. The results indicate that radio play does not have the positive impact on record sales normally attributed to it and instead appears to have an economically important negative impact, implying that overall radio listening is more of a substitute for the purchase of sound recordings than it is a complement. This finding indicates that creating a set of property rights to allow this market to function properly is different than has been suggested by prior research. This research also exposes a fallacy of composition in applying to an entire market a generally accepted positive relationship that holds for individual units. New technologies changing the nature of radio broadcasts are likely to make this topic increasingly important in the coming years.

radio, albums, sound recordings, payola, broadcasting, fallacy of composition

Abstract:
Although it was once considered inevitable that unauthorized copying would harm copyright owners, it is now understood that this is not necessarily the case. The concept of indirect appropriability played an important role in shaping this newer understanding. In recent years, however, many economists seem to have taken the message from this new understanding too far, seeing gains to the copyright owners from unauthorized copying in every nook and cranny of the economy, when in reality the instances of such gains are likely to be rather limited. The current literature on this subject, which consists mainly of theoretical models, seems to be badly out of kilter. In this paper I attempt to explain some of the problems and try to provide the outlines of what I believe to be a more balanced and nuanced view of copying. It emphasizes the importance of examining various institutional and behavioral details of individual markets, which are often overlooked by researchers.

Piracy

Abstract:
Although it was once considered inevitable that unauthorized copying would harm copyright owners, it is now understood that this is not necessarily the case. The concept of indirect appropriability played an important role in shaping this newer understanding. In recent years, however, many economists seem to have taken the message from this new understanding too far, seeing gains to the copyright owners from unauthorized copying in every instance of copying, when in reality the instances of such gains are likely to be rather limited. The current literature on this subject, which consists mainly of theoretical models, seems to be badly out of kilter. In this paper I attempt to explain some of the problems and try to provide the outlines of what I believe to be a more balanced and nuanced view of copying. It emphasizes the importance of examining various institutional and behavioral details of individual markets, which are often overlooked by researchers.

Copying, copyright, indirect appropriability, file sharing, piracy, peer to peer

Abstract:
This paper analyzes some consequences of the district courts proposed remedy. Due to changes in pricing strategies and/or the double marginalization problem, prices for operating systems and applications are likely to rise. I estimate what these extra costs to consumers might be. My best guess (actually quite conservative) is $120 billion worldwide over 3 years, although it could be over $300 billion. I also note that the remedy decreases competition in several important markets, including high end servers and game consoles. The paper also includes an analysis of how the remedy is likely to be interpreted.

Abstract:
This is an examination of the government's proposed remedy in the microsoft case. It was performed for the Association of Competitive Technology.

Although a breakup along business lines might be thought to be relatively low cost as breakups go, government imposed restrictions on trade, and its capricious division of products are likley to reduce competition in several markets and lower the quality of products from the two microsoft components. The cliamed benefits would be inconsistent with the government's theory in the case.

Abstract:
This paper is an analysis of the economics underlying the Betamax case. It was written in 1985 but never published. With the renewed interest in copying and copyright in recent years, and because it has been cited and appeared on some reading lists, I thought it might be useful to make it available.

Abstract:
Felix Oberholzer-Gee and Koleman Strumpf, in their recent paper on file-sharing, provide numerous additional tests and facts to support their overall conclusion that file-sharing has a benign impact on record sales. In this note I attempt to replicate their additional tests and check their facts. My replication finds results that contradict the claims of Oberholzer-Gee/Strumpf for each of the additional tests. Further, many facts do not pass a careful fact-check. I then propose some methodological problems with the main analysis to explain why their main analysis gives results at odds with these other tests, industry facts, and the rest of the literature. There is a longer version of this paper available on SSRN which provides more detailed analysis, data and discussion.

downloads, mp3, file sharing, internet, copying

Abstract:
This paper attempts to determine the impact of copyright on the prices of books, which is a task that has not, to my knowledge, been undertaken before. Recent prices of best-sellers written between 1895 and 1940, some with copyright and some without, are compared. One set of empirical findings based on typical regressions indicate that the prices of copyrighted works do not appear higher than the prices of non-copyrighted works. Another set of findings, based upon giving greater weights to books that have greater unit sales, implies that copyright raises price by up to 14.5%. This bifurcated result allows the contemplation of two scenarios. In the first, copyright does not raise price at all. This is explained by appealing to the nascent literature on uniform pricing. If books are best described by this model I show that increases in copyright unambiguously increase welfare. The increased-price scenario notes that authors appear to receive all the industry rents and examines the possible deadweight losses due to the higher price of copyrighted books. I calculate a range of deadweight losses based upon seemingly reasonable market assumptions and find the size of the deadweight loss is small compared to industry revenue. Importantly, the size of this deadweight loss appears to be much less than the deadweight losses from a leading alternative system that has been proposed for distributing creative works.

copyright, books, monopoly, deadweight loss

Abstract:
There appears to be a common misconception, even among economists, that all instances of new technologies driving out old technologies are beneficial. This short essay attempts to point out that some new technologies do not so much replace an old technology as destroy an old technology without a superior technology left in place. The example provided concerns a technology whose sole function is to remove advertising from advertising based programming. Such a technology would unambiguously decrease total surplus.

technology, tivo, commercials, advertising

Abstract:
Economic analysis of copyrights and patents focuses on the balance of the incentive/access tradeoff — that is, does the public benefit from the financial incentive provided to innovators who get (for a limited time) exclusive right over their creation offset the public loss from limiting public access to that creation? This paper examines that tradeoff in the context of book copyright and finds, surprisingly, that book copyright raise the price of books little, if at all, and accordingly that there is little, if any, monopoly deadweight losses. Whatever rents are created by book copyrights appear to go almost entirely to the authors, as the creators of copyright intended.

copyright law, copyright monopoly, copyright rents, IP law, intelectual property

Abstract:
The extent to which the Internet has altered traditional leisure activities has received limited academic study. In this paper we use panel data going back to the beginning of web browsing to examine how the Internet impacts the most important recreation activity of Americans: television viewing. Our results are not consistent with a view that the Internet would have a massive impact on television viewing. Instead, we find that the effect of the Internet on television viewing varies monotonically with the age, reducing it for the youngest American but having no impact on the viewing of the oldest Americans. Even for young individuals, our results suggest that the size of the displacement effect appears to be quite moderate.

Television Internet Substitution

Abstract:
The focus of this essay is to examine the market for copyrighted works with a particular emphasis on the sound recording market. This market is currently in a state of flux, some would say disarray, due to the ability of the Internet to lower transmission costs for both authorized and unauthorized copies, with the latter being, at this time, far more prevalent. In this essay we discuss the intent of copyright, the role of copying and file-sharing, and some alternative production/consumption schemes meant to strengthen or to replace copyright.