Hakfoort, Jacco --- "Copyright in the digital age: the economic rationale re-examined" [2002] ELECD 50; in Towse, Ruth (ed), "Copyright in the Cultural Industries" (Edward Elgar Publishing, 2002)

Book Title: Copyright in the Cultural Industries

Editor(s): Towse, Ruth

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781840646610

Section: Chapter 5

Section Title: Copyright in the digital age: the economic rationale re-examined

Author(s): Hakfoort, Jacco

Number of pages: 22

Extract:

5. Copyright in the digital age: the
economic rationale re-examined
Jacco Hakfoort

5.1 INTRODUCTION

Markets for information goods have a number of specific economic
characteristics. First, they are characterized by high fixed and low marginal
costs. Publishers of information goods2 incur high - often sunk - fixed costs
to produce content or `the original'. Reproduction of the original (making
`copies') on the other hand is relatively cheap. Second, information goods are
non-rival. Once the content is produced, other consumers than the initial buyer
can use it without additional cost. You can listen to the CD a friend or relative
has bought.
The non-rivalry of information goods combined with the `high fixed, low
marginal cost' character of production creates a latent market failure:
underproduction. The incentive to publish new content is lower than in the
case of rival goods because the publisher cannot appropriate all the revenues
from producing the good. This problem becomes even worse when others have
access to copying technology that enables reproduction of content at (low)
marginal cost. In the latter case, the publisher competes both with publishers
who produce substitutes and with the copies made by consumers and/or
producers. This competition forces the publisher to adjust his or her price
downwards. As a result, the publisher will not be able to recoup his or her
initial investment (that is the fixed cost). This reduces the incentive to produce
new work and may hurt diversity.
Economic theory suggests three policy solutions to the problem ...