2019-03-22 18:47:01
Monopolies, substitutes and Intellectual Property economics/theory

There is some discussion going on in the economic literature whether copyright creates a monopoly for the author or there are many substitutes to any work protected copyright (see the reading list for relevant literature).

The monopoly argument is important because economists do not like monopolies and look at them as strong reasons for regulatory intervention. The fair use provisions are part of any copyright legislation just because of this: they serve as escape routes from the monopolistic power of creators.

So far I have not seen any convincing argument for or against the monopoly case. Maybe because there is none. So here is a solution, that defines monopoly (a very economic term) with the help of culture.

Anyone, who wishes to read the the book for which author Imre Kertesz won the Nobel price will be in difficult position to find a substitute. Other Nobel price winners or other works from Mr. Kertesz simply wont do the job. So whoever owns the rights for that work has indeed monopoly power ower the work.

This is also the case when we think about fan communities. For a die-hard Star Wars fan a film about Superman wont be a good substitute, morover it wont be a substitute at all.

On the other hand, for someone like me, who dislikes most of the movies from hollywood, it makes no difference if -having nothing else to do-, my local cinema does not play You Me and Dupree, only Superman Returns. I am not loyal, I am not fan, I am not member of that culture that values that specific piece of culture as his own. These two movies compete for me, and they are perfect substitutes for that night.
The bottom line is: intellectual property legislation creates monopoly for those whom a piace of cultural good really matters, and is an imperfect monopoly for those who do not care.

Mass produced, low shelf-life entertainment products tend to fall into the non-monopoly category, as few of them have loyal fanbase. Other cultural items, classics, cult pieces, things part of ‘high culture’ (meaning that they have a consumer base that values them on very sophisticated terms) tend to be monopolies.

But either way. If we can talk about a cultural monopoly in cases where there are consumers who really care, than it is a monopoly, even if there are consumer segments where it behaves like a competing product.

Antal Dániel — December 30, 2006 @ 2:43 pm

I do not think that there is a universal answer to your question. The intent of intellectual property rights is to create new property rights not new monopolies. If a new intellectual property becomes an effective monopoly it may be regulated.

I think Wikipedia has a very clear definition on monopoly (http://en.wikipedia.org/wiki/Monopoly) In the current US and EU competition legislation all the three characteristics are important to decide if something is a monopoly and if there is a possibility of abuse: a monopolist is a single seller, there are no close substitutes, and the monopolist can set the prices independently of other market players.

I think it is very difficult to find an author or a publisher who can effectively monopolize an intellectual property.

The European competition law has a very revealing definition about the possibility of substitution: the product should have a substitute in the relevant market. In Europe we talk about a monopoly if there is no relevant alternative product in the relevant geographical market to substitute a product. In this case the monopolist can set the prices freely in a geographically set market and may abuse its monopoly power.

bodo — December 31, 2006 @ 9:50 pm

I have to disagree and cite Joseph Stiglitz:
“Intellectual property rights, however, enable one person or company to have exclusive control of the use of a particular piece of knowledge, thereby creating monopoly power.”

https://www.warsystems.hu/?p=285

He talks about medical patents, and I think we can agree that patents do create monopolies. So do trademarks. I don’t see why authors rights and copyright why would be an exception.

Antal Dániel — January 3, 2007 @ 8:05 am

I do not see a contradiction. You can call any possession, property a monopoly, but it would not make sense. Not all properties go to the market. If we would regard each and every market transaction a monopoly transaction we could not tell property from monopoly.

Let’s have a look at your example. Somebody may own the original manuscript of Imre Kertesz’s Nobel-winning ‘Sorstalanság’. You may call him a monopolist, but it would not really upset his readers, who want to book, not the manuscript.

However, the book is available in many editions, in many conditions and many languages. You have to live in a very remote, disconnected part of the Earth (a very separate geographical market) if somebody wants to abuse monopoly power over Kertesz’s work.

With a little search, I have found the following prices:

Imre Kertész: Sorstalanság (Fatelessness, Roman eine Schicksallosen)
Bookline.hu 1 692 Ft (hardcover) / 1 400 Ft used hardcover
Amazon.de: EUR 8,90 / used from EUR 4,71.
Amazon.co.uk £4.84 – £5.59 / used from £2.50
Amazon.com $11.58 / used from $9.89
(Bookline did not have paperbacks. The foreign editions have an extra cost, the copyrights of the translator).

Now compare these prices with a similarly great, altough not Nobel-winning book. Der Vorleser has a similar topic and maybe a similar readership. The prices:

Bernard Schlink: Der Vorleser (The Reader, A felolvasó)
Hungarian price (out of market) 1 180 Ft
Amazon.de EUR 7,90 / usedf from EUR 5,75
Amazon.co.uk: £5.59 / used from £3.74
Amazon.com $10.75 / $4.64 used / German original import $14.00

At the third time I written this in my word processor. Your engine does not like long edits and I lost the text twice. For the third time I won’t do the currency conversions, but I think none of these prices are extraordinary in the national markets and are not very far away from each other anyway.

Has Kertész (or his agent, or his publishers) a monopoly powerr over Sorstalanság? I don’t believe they have a relevant, substantial monopoly power. I guess around EUR 20 or $25 or 5000 Ft they would simply outprice themselves from the market. Do they have some monopoly power, or some power to do price discrimination. I believe that they do, if these normal price alternatives would not be present, I am sure that some readers would pay EUR 200 for this book. But fortunately there is a competition in the market and the consumer surplus remains at the reader.

bodo — January 3, 2007 @ 4:50 pm

Well, you are right and you are not. Here is why.
I do not think that by citing examples that you can buy the book for a given price you argue against the monopoly. Monopolists of course are on the market as sellers, but, as you have pointed out, they are special in three sense:

* Single Seller
* No close substitutes
* Price maker

I would not confuse the book as a physical object, and the work as the subject of monopoly. The book can be bought from many retailers, through many different channels, this is clearly in the interest of the monopolist. Many of these channels (namely the libraries and secondary markets) can only exists because there are limits to the monopoly rights of the author/publisher which allow the resell and lending of the book without a authorization of the right owner. But if you were to publish your own, paperback version of the work (for the benefit of the poor), translate it, create a play, movie or any other derivative work, there is only one source from where you can get authorization and that is the author/publisher. So there is only a singe seller, not of the physical object, but of the work.

You have to judge the issue of close substitutes also not on the object level, but on the level of the work. There were, and certainly will be several conflicts when the owner of the rights interferes with the use of a protected work. The irrational behavior of the Bartok heirs, trying to censor certain adaptations of his works (see: http://www.nol.hu/kultura/cikk/367458/), or the Jozsef Attila heirs (http://index.hu/kultur/pol/jozsefa0413/) blocking the online publication of the poems show not only the power of a single seller, but also the lack of substitutes: you cannot say that, heck, we will play Bach works at the Bartok centennial.

As for the price making power: first you should exclude the secondary market prices as the are the result of a limit to the monopoly power, and then compare the price variation and the average price of works in copyright and works in the public domain. The difference you will find is the deadweight loss of the monopolist, i guess.

What you see as a competition, is indeed a very limited and controlled one. The best example for this is the price of online songs. All the online music services that carry the catalog of the big 5 have very-very similar prices (http://www.museekster.com/legalmusic.htm), where you see any deviation from the .99 USD/song, it is because the service is ‘illegal’ like that of allofmp3.com, or because the publisher is not a major. Should two bands or two songs be more or less perfect substitutes to each other, we would see a shift in demand towards the cheaper (even free) music, but this is clearly not the case.

Antal Dániel — January 6, 2007 @ 10:46 am

Well, I think we came to a certain level of understanding. I think the problem with the Bartok-heirs is not a problem of economic monopoly.

Regarding the question if we should exclude the secondary book markets from this monopoly-question I do not agree. If the reader has a demand for a certain work and not a physical book object, which is correct I think, than you are arguing for the possibility to substitute a hardcover copy with a paperback, or a paperback with a used hardcover, etc.

This allows for a certain level of price discrimination, which is good for the seller, as it takes away a bit of the consumer surplus in money terms, but it works against exclusion, because poorer or less interested buyers can obtain the work! The interesting fact of price discrimination is that it is Pareto-efficient in a way that more people get what they want. In money terms the seller (the author and/or the middlemen) and the poorer buyers are better of and the richer consumers loose some of their consumer surplus.

However, I believe that most authors and publishers have a very little power to monopolize the market. Most buyers in the market want to buy something nice, or interesting, or calming, or they need a work of reference, and they keep the prices down, even for those, who are diehard in getting the certain physical object or work.

bodo — January 14, 2007 @ 7:47 pm

I have cited the Bartok heirs to show that there is a monopoly. I think that if we agree that the heirs have *semantic* monopoly over the works we have to agree that the same heirs have economic monopoly as well. In fact Coombe argues (see the reading list) that the economic monopoly created by legal means leads to this semantic monopoly.

As for the secondary market: there is a secondary market of the objects because the law definitely allows it. there is no secondary market though in digital goods (mp3s purchased via itunes or windows operating systems) because these transactions are contract based, signaling what would happen if copyright owners could write copyright laws alone.

And a final remark: you equate buyers with readers. That is not a valid equation though. Readers are writers, remixers, reusers, who not only want access to the physical object but to the rights as well. Though I see some signs of rights owners to lower their prices on the market of derivative works, the overwhelming majority of current legal conflicts show an opposite trend.
You can argue that the high price of rights in comparison with the price of the objects still reflects an institutional framework where a reuse of a work was a capital intensive activity, but this is not the case anymore. will we see a change where the price of rights will be as low as the price of goods? if we change the law, certainly: we should allow collecting societies to offer more rights to more types of consumers.

Pingback warsystems » The problem is cultural and the consequences are economic — January 16, 2007 @ 1:13 am

[…] See my writing on the substitutability of cultural goods for similar arguments.  Comment this post […]

bodo — January 18, 2007 @ 3:13 am

Here is an article (via rorimack) from The Register, which shows a great example to works where there is no monopoly: photography. The proliferation of digital cameras and pictures posted online have pushed the price of most professional pictures down. Nice. http://www.theregister.co.uk/2006/12/29/photojournalism_and_copyright/

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