Nonrivalry and Price Discrimination in Copyright Economics

31 Pages Posted: 21 May 2009 Last revised: 24 Aug 2009

See all articles by John P. Conley

John P. Conley

Vanderbilt University - College of Arts and Science - Department of Economics

Christopher S. Yoo

University of Pennsylvania Law School; University of Pennsylvania - Annenberg School for Communication; University of Pennsylvania - School of Engineering and Applied Science

Abstract

The literature on the economics of copyright proceeds from the premise that copyrightable works constitute pure public goods, which is generally modeled by assuming that such works are nonexcludable and that the marginal cost of making additional copies is essentially zero. A close examination of the foundational literature on public goods theory reveals that the defining characteristic of public goods is instead the optimality criterion known as the “Samuelson condition,” which implies that the systematic bias toward underproduction is the result of the inability to induce consumers to reveal their preferences rather than the inability to exclude or price at marginal cost. Reframing the analysis in terms of the Samuelson condition also contradicts the hostility toward price discrimination reflected in much of the literature by implying that price discrimination is a necessary condition for optimality. At the same time, it implies that the producer need only appropriate the marginal benefits created by the public good, which in turn provides a basis for determining an optimal level of price discrimination that still permits consumers to retain some of the surplus. Moreover, broadening public good models to reflect the fact that copyrighted works often serve as imperfect substitutes for one another allows the number of works to be determined endogenously. In such impure public goods models, the systematic bias toward underproduction disappears, and price discrimination once again may (but need not necessarily) promote optimality.

Keywords: intellectual property, public goods, Samuelson condition, access-incentives tradeoff, hedonic characteristics, spatial competition

JEL Classification: H42, K39

Suggested Citation

Conley, John P. and Yoo, Christopher S., Nonrivalry and Price Discrimination in Copyright Economics. University of Pennsylvania Law Review, Vol. 157, Pg. 1801, July 2009, Available at SSRN: https://ssrn.com/abstract=1407577

John P. Conley

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Christopher S. Yoo (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom St.
Philadelphia, PA 19104-6204
United States
(215) 746-8772 (Phone)

HOME PAGE: http://www.law.upenn.edu/faculty/csyoo/

University of Pennsylvania - Annenberg School for Communication ( email )

3620 Walnut St.
Philadelphia, PA 19104-6220
United States
(215) 746-8772 (Phone)

University of Pennsylvania - School of Engineering and Applied Science ( email )

3330 Walnut St.
Philadelphia, PA 19104-6309
United States
(215) 746-8772 (Phone)

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