An Industrial Organization Approach to Copyright Law

Abstract

Although copyright’s chief goal is often said to be the provision of incentives for producing new works, the literature on copyright rarely addresses how proposed changes in copyright law would have meaningful effects on the variety of copyrighted works available to consumers. With a focus on the economics of product differentiation and rent dissipation analysis, this Article elaborates on the insight that marginal copyrighted works are not likely to produce large contributions to social welfare and argues that the greater the success of copyright law in generating large numbers of works, the more copyright law should care about access.

Part I of this Article explores the economics of product differentiation, drawing on the literature to explain how variations in the assumptions of this model might produce competing effects. Part I also reports the results of an original simulation study which reinforces the argument that business stealing is a greater concern in low marginal cost markets, and it shows that regardless of whether there is overentry or underentry, permitting some copying may increase consumer welfare. Part II supplements the analysis with a number of different perspectives, canvassing a range of economic arguments, and explains how the concept of demand diversion can improve on a prominent account of “winner-take-all” markets. Finally, Part III briefly considers the dual applications of peer-to-peer technology and the copyright term, and evaluates two broader potential implications of the analysis: that copyright law can seek to achieve distributive justice without much cost and that copyright law should become less expansive over time.

Keywords: copyright, incentives, access, marginal works, product differentiation, demand diversion, business stealing, rent dissipation, externalities, democratic theory, distribution

JEL Classification: D23, D42, K39