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As I have pointed out before, intellectual property does not exist for the same reasons that other property rights exist. Normal property rights exist because many resources (land, labor, computers, oil etc.) are scarce; using them reduces their usability for other people (burning gasoline in your car prevents others from doing the same). Property rights over such resources forces people to consider the opportunity cost of using them which gives property right holders incentives to use their resources economic-efficiently.

However, information (ideas, writings etc.) is not scarce; ideas have no opportunity cost. If I use the idea of an internal combustion engine to make a car, that does not reduce other people’s ability to use the idea of an internal combustion engine. The reason that intellectual property rights are useful is that they encourage the production of such information, but at the cost of causing information resources to be used inefficiently.

However, granting temporary monopolies (patents and copyrights) to information producers, is not necessarily the optimal solution; better institutations may exist. Finding ways to encourage useful information production at lower costs to information use efficiency, would be good for everyone.

Tregol Publishing is a service that makes a limited attempt to do just that.

Tregol is a service for authors to sell their works (as ebooks) but release them to the public domain (so that more people use the work) after they have received reasonable compensation. Authors who publish using Tregol specify a sale price and a World Price and/or a selling duration for their work. When the total income from book sales reaches the World Price or the selling duration elapses, the work becomes public domain.

This allows publicly minded authors to easily create a lot of public good while being compensated for the significant resources (mainly their time) they used to create their works. More discussion in Tregol’s FAQ.

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The Coyote Blog via CopyOwner points to this CRM Buyer article about “gray market piracy.” “Gray market piracy” is where companies in poor places, where copyright using products are sold cheaply, export the copyright using products back into rich countries to profit from the price differential. Both Coyote and CopyOwner bemoan the fact that the article calls these exporters “pirates.” CopyOwner is right to point out that gray market exporters are not legally pirates, the article says as much, but that does not mean it would be a bad idea to make reimportation of copyright using products illegal or restricted. The net effect of such a law would be to give copyright holders an improved ability to discriminate geographically, and I want to present what I think is a strong argument for why better geographic price discrimination would be good.

I should mention that I do not blindly advocate stronger copyrights; Chris and I both agree that current copyright term lengths seem far too long. Chris has noted some work by Rufus Pollock which calculated the socially optimum copyright term length to be 14 years, which is far shorter that the current term length of 70 years after the death of the author. Copyrights, and intellectual property in general, should be a means to induce the production of socially valuable ideas and not an end in themselves. But production of socially valuable ideas is not enough, in order to improve human welfare, they must be used a lot, and that is why we should consider how improved geographic price discrimination by copyright holders may harm or improve general welfare.

Improved price discrimination could be welfare improving by increasing the quantity of copyright using products consumed by the public. When monopolies, like copyright holders, cannot price discriminate perfectly, they price their goods socially suboptimally, because maximizing their profits involves high prices and limited supply. Better price discrimination allows monopolistic firms to make more money by selling to more people.

Some copyright holders do currently have some ability to discriminate geographically, charging high prices in rich regions and lower prices in poorer regions. For example, DVD region codes make DVDs work in some countries (I am not clear on how the use of region codes is enforced for DVD players, perhaps the patent holder of some critical DVD technology requires the use of region codes as a precondition for using DVD reading technology in DVD players). This allows DVD manufacturers to sell their products for different prices in different regions. In the case of DVDs, this price ability might disappear, because region codes have come under legal attack.

Improved geographic price discrimination abilities for copyright holders would allow them to sell copyright using products to people in poorer countries at lower prices without damaging their profit from selling in rich countries, creating an incentive for copyright holders to sell more copyright using products in poor countries. Reduced geographic price discrimination abilities for copyright holders, due to technological change or legal change (in the case of region codes), would mean that selling copyright using products to people in poorer countries at lower prices than in rich countries would reduce their net profit because of price arbitrage, creating an incentive for copyright holders to sell fewer copyright using products in poor countries. Copyright using products are generally free of negative externalities, so virtually any increase in the quantity consumed should be regarded as a welfare improvement and reductions in the quantity consumed should be regarded as welfare reductions, so allowing greater price discrimination should be welfare improving since more copyright using products would be consumed.

Although my libertarian sensibilities biases me against it, I think there is a strong argument to be made for restricting the reimportation of copyright using products, but more study of the welfare effects would definitely be a good idea.


Tyler Cowen points to an excellent article by James Surowiecki on why we should not force U.S. IP law on trading partners. I have been thinking about intellectual property lately (IP), though not about how it relates to trade, but I still agree with Surowiecki wholeheartedly. At the very least, new IP protections should only apply to patents and copy rights established after the change in laws. Making IP protections retroactive will only reduce the use of ideas without promoting any future invention.

Even in the U.S. I would guess that IP protections are too high by a wide margin, especially where software is concerned. Intellectual property rights exist to promote investment of resources into the creation and use of ideas. Low intellectual property right protections means that not enough investment will go into creating ideas. High intellectual property right protections means that right holders will attempt to extract all the value created from their idea and so too few ideas will be used. Clearly there should be some optimal level of protection.

In fields such as the software industry, bad patents are common. For example, Amazon.com owns a patent over one click shopping. It is not surprising that the US has higher than optimal IP protections or that the US pushes to force new trading partners to adopt higher IP protections. In developed countries, higher intellectual property right protections generally benefit concentrated and organized interests overdispersed and unorganized interests. The concentrated interests are usually well organized companies who have the resources to patent every patentable idea they have and enforce those patents. The dispersed interests are small and potential companies who want to use those ideas to create new businesses and the public at large. It is a well established result from group theory that concentrated interests have much greater power to lobby for legislative bodies than dispersed interests because the ratio of individual benefit to the cost of lobbying is much higher for concentrated interests. This is why I believe that IP protections are very likely too high in the US.