Archives For music

Underpinning many policy disputes is a frequently rehearsed conflict of visions: Should we experiment with policies that are likely to lead to superior, but unknown, solutions, or should we should stick to well-worn policies, regardless of how poorly they fit current circumstances? 

This conflict is clearly visible in the debate over whether DOJ should continue to enforce its consent decrees with the major music performing rights organizations (“PROs”), ASCAP and BMI—or terminate them. 

As we note in our recently filed comments with the DOJ, summarized below, the world has moved on since the decrees were put in place in the early twentieth century. Given the changed circumstances, the DOJ should terminate the consent decrees. This would allow entrepreneurs, armed with modern technology, to facilitate a true market for public performance rights.

The consent decrees

In the early days of radio, it was unclear how composers and publishers could effectively monitor and enforce their copyrights. Thousands of radio stations across the nation were playing the songs that tens of thousands of composers had written. Given the state of technology, there was no readily foreseeable way to enable bargaining between the stations and composers for license fees associated with these plays.

In 1914, a group of rights holders established the American Society of Composers Authors and Publishers (ASCAP) as a way to overcome these transactions costs by negotiating with radio stations on behalf of all of its members.

Even though ASCAP’s business was clearly aimed at ensuring that rightsholders’ were appropriately compensated for the use of their works, which logically would have incentivized greater output of licensable works, the nonstandard arrangement it embodied was unacceptable to the antitrust enforcers of the era. Not long after it was created, the Department of Justice began investigating ASCAP for potential antitrust violations.

While the agglomeration of rights under a single entity had obvious benefits for licensors and licensees of musical works, a power struggle nevertheless emerged between ASCAP and radio broadcasters over the terms of those licenses. Eventually this struggle led to the formation of a new PRO, the broadcaster-backed BMI, in 1939. The following year, the DOJ challenged the activities of both PROs in dual criminal antitrust proceedings. The eventual result was a set of consent decrees in 1941 that, with relatively minor modifications over the years, still regulate the music industry.

Enter the Internet

The emergence of new ways to distribute music has, perhaps unsurprisingly, resulted in renewed interest from artists in developing alternative ways to license their material. In 2014, BMI and ASCAP asked the DOJ to modify their consent decrees to permit music publishers partially to withdraw from the PROs, which would have enabled those partially-withdrawing publishers to license their works to digital services under separate agreements (and prohibited the PROs from licensing their works to those same services). However, the DOJ rejected this request and insisted that the consent decree requires “full-work” licenses — a result that would have not only entrenched the status quo, but also erased the competitive differences that currently exist between the PROs. (It might also have created other problems, such as limiting collaborations between artists who currently license through different PROs.)

This episode demonstrates a critical flaw in how the consent decrees currently operate. Imposing full-work license obligations on PROs would have short-circuited the limited market that currently exists, to the detriment of creators, competition among PROs, and, ultimately, consumers. Paradoxically these harms flow directly from a  presumption that administrative officials, seeking to enforce antitrust law — the ultimate aim of which is to promote competition and consumer welfare — can dictate through top-down regulatory intervention market terms better than participants working together. 

If a PRO wants to offer full-work licenses to its licensee-customers, it should be free to do so (including, e.g., by contracting with other PROs in cases where the PRO in question does not own the work outright). These could be a great boon to licensees and the market. But such an innovation would flow from a feedback mechanism in the market, and would be subject to that same feedback mechanism. 

However, for the DOJ as a regulatory overseer to intervene in the market and assert a preference that it deemed superior (but that was clearly not the result of market demand, or subject to market discipline) is fraught with difficulty. And this is the emblematic problem with the consent decrees and the mandated licensing regimes. It allows regulators to imagine that they have both the knowledge and expertise to manage highly complicated markets. But, as Mark Lemley has observed, “[g]one are the days when there was any serious debate about the superiority of a market-based economy over any of its traditional alternatives, from feudalism to communism.” 

It is no knock against the DOJ that it patently does not have either the knowledge or expertise to manage these markets: no one does. That’s the entire point of having markets, which facilitate the transmission and effective utilization of vast amounts of disaggregated information, including subjective preferences, that cannot be known to anyone other than the individual who holds them. When regulators can allow this process to work, they should.

Letting the market move forward

Some advocates of the status quo have recommended that the consent orders remain in place, because 

Without robust competition in the music licensing market, consumers could face higher prices, less choice, and an increase in licensing costs that could render many vibrant public spaces silent. In the absence of a truly competitive market in which PROs compete to attract services and other licensees, the consent decrees must remain in place to prevent ASCAP and BMI from abusing their substantial market power.

This gets to the very heart of the problem with the conflict of visions that undergirds policy debates. Advocating for the status quo in this manner is based on a static view of “markets,” one that is, moreover, rooted in an early twentieth-century conception of the relevant industries. The DOJ froze the licensing market in time with the consent decrees — perhaps justifiably in 1941 given the state of technology and the very high transaction costs involved. But technology and business practices have evolved and are now much more capable of handling the complex, distributed set of transactions necessary to make the performance license market a reality.

Believing that the absence of the consent decrees will force the performance licensing market to collapse into an anticompetitive wasteland reflects a failure of imagination and suggests a fundamental distrust in the power of the market to uncover novel solutions—against the overwhelming evidence to the contrary

Yet, those of a dull and pessimistic mindset need not fear unduly the revocation of the consent decrees. For if evidence emerges that the market participants (including the PROs and whatever other entities emerge) are engaging in anticompetitive practices to the detriment of consumer welfare, the DOJ can sue those entities. The threat of such actions should be sufficient in itself to deter such anticompetitive practices but if it is not, then the sword of antitrust, including potentially the imposition of consent decrees, can once again be wielded. 

Meanwhile, those of us with an optimistic, imaginative mindset, look forward to a time in the near future when entrepreneurs devise innovative and cost-effective solutions to the problem of highly-distributed music licensing. In some respects their job is made easier by the fact that an increasing proportion of music is  streamed via a small number of large companies (Spotify, Pandora, Apple, Amazon, Tencent, YouTube, Tidal, etc.). But it is quite feasible that in the absence of the consent decrees new licensing systems will emerge, using modern database technologies, blockchain and other distributed ledgers, that will enable much more effective usage-based licenses applicable not only to these streaming services but others too. 

We hope the DOJ has the foresight to allow such true competition to enter this market and the strength to believe enough in our institutions that it can permit some uncertainty while entrepreneurs experiment with superior methods of facilitating music licensing.

Today, the International Center for Law & Economics released a white paper, co-authored by Executive Director Geoffrey Manne and Senior Fellow Julian Morris, entitled Dangerous Exception: The detrimental effects of including “fair use” copyright exceptions in free trade agreements.

Dangerous Exception explores the relationship between copyright, creativity and economic development in a networked global marketplace. In particular, it examines the evidence for and against mandating a U.S.-style fair use exception to copyright via free trade agreements like the Trans-Pacific Partnership (TPP), and through “fast-track” trade promotion authority (TPA).

In the context of these ongoing trade negotiations, some organizations have been advocating for the inclusion of dramatically expanded copyright exceptions in place of more limited language requiring that such exceptions conform to the “three-step test” implemented by the 1994 TRIPs Agreement.

The paper argues that if broad fair use exceptions are infused into trade agreements they could increase piracy and discourage artistic creation and innovation — especially in nations without a strong legal tradition implementing such provisions.

The expansion of digital networks across borders, combined with historically weak copyright enforcement in many nations, poses a major challenge to a broadened fair use exception. The modern digital economy calls for appropriate, but limited, copyright exceptions — not their expansion.

The white paper is available here. For some of our previous work on related issues, see:

By Geoffrey Manne and Berin Szoka

Everyone loves to hate record labels. For years, copyright-bashers have ranted about the “Big Labels” trying to thwart new models for distributing music in terms that would make JFK assassination conspiracy theorists blush. Now they’ve turned their sites on the pending merger between Universal Music Group and EMI, insisting the deal would be bad for consumers. There’s even a Senate Antitrust Subcommittee hearing tomorrow, led by Senator Herb “Big is Bad” Kohl.

But this is a merger users of Spotify, Apple’s iTunes and the wide range of other digital services ought to love. UMG has done more than any other label to support the growth of such services, cutting licensing deals with hundreds of distribution outlets—often well before other labels. Piracy has been a significant concern for the industry, and UMG seems to recognize that only “easy” can compete with “free.” The company has embraced the reality that music distribution paradigms are changing rapidly to keep up with consumer demand. So why are groups like Public Knowledge opposing the merger?

Critics contend that the merger will elevate UMG’s already substantial market share and “give it the power to distort or even determine the fate of digital distribution models.” For these critics, the only record labels that matter are the four majors, and four is simply better than three. But this assessment hews to the outmoded, “big is bad” structural analysis that has been consistently demolished by economists since the 1970s. Instead, the relevant touchstone for all merger analysis is whether the merger would give the merged firm a new incentive and ability to engage in anticompetitive conduct. But there’s nothing UMG can do with EMI’s catalogue under its control that it can’t do now. If anything, UMG’s ownership of EMI should accelerate the availability of digitally distributed music.

To see why this is so, consider what digital distributors—whether of the pay-as-you-go, iTunes type, or the all-you-can-eat, Spotify type—most want: Access to as much music as possible on terms on par with those of other distribution channels. For the all-you-can-eat distributors this is a sine qua non: their business models depend on being able to distribute as close as possible to all the music every potential customer could want. But given UMG’s current catalogue, it already has the ability, if it wanted to exercise it, to extract monopoly profits from these distributors, as they simply can’t offer a viable product without UMG’s catalogue. Continue Reading…

Stan Liebowitz (UT-Dallas) offers a characteristically thoughtful and provocative op-ed in the WSJ today commenting on SOPA and the Protect IP Act.  Here’s an excerpt:

You may have noticed last Wednesday’s blackout of Wikipedia or Google’s strange blindfolded-logo screen. These were attempts to kill the Protect IP Act and the Stop Online Piracy Act, proposed legislation intended to hinder piracy and counterfeiting. The laws now before Congress may not be perfect, and they can still be amended. But to do nothing and stay with the status quo is to keep our creative industries at risk by failing to enforce their property rights.

Critics of these proposed laws claim that they are unnecessary and will lead to frivolous claims, reduce innovation and stifle free speech. Those are gross exaggerations. The same critics have been making these claims about every previous attempt to rein in piracy, including the Digital Millennium Copyright Act that was called a draconian antipiracy measure at the time of its passage in 1998. As we all know, the DMCA did not kill the Internet, or even do any noticeable damage to freedom—or to pirates.

Scads of Internet pundits and bloggers have vehemently argued that piracy is really a sales-promoting activity—because it gives people a free sample that might lead to a purchase—or that any piracy problems have been due to a failure of industry to embrace the Internet. Yet these claims are little more than wishful thinking. Some reflect a hostility to commercial activities—think Occupy Wall Street, or self-interest. Others make “freedom” claims on behalf of sites that profit by helping individuals find pirate sites, makers of complementary hardware, or companies that benefit from Internet usage and collect revenues whether the material being accessed was legally obtained or not.

In my examination of peer-reviewed studies, the great majority have results that conform to common sense: Piracy harms copyright owners. I was also somewhat surprised to discover that the typical finding of such academic studies was that the entire enormous decline that has occurred is due to piracy.

Contrary to an often-repeated myth, providing consumers with convenient downloads at reasonable prices, as iTunes did, does not appear to have ameliorated piracy at all. The sales decline after iTunes exploded on the scene was about the same as the decline before iTunes existed. Apparently it really is difficult to compete with free. Is that really such a surprise?

Do check out the whole thing.

 

 

Apparently, the Illinois Attorney General is investigating Lollapalooza for potential antitrust violations arising out of exclusivity clauses that the concert promoter includes in the contracts signed with artists who play the show.

The controversial radius clauses prohibit Lollapalooza acts ranging from the top headliners to the smallest “baby bands” at the bottom of the bill from playing anywhere else in the Chicago area for months before and after their appearance at Lollapalooza in August. Sources have said that the most extreme of these clauses stretch from six months before Lollapalooza to three months after it, and that they encompass a 300-mile radius—which would include concert markets as far away as Milwaukee, Madison, Iowa City, Detroit, and Indianapolis.

Many local Chicago club owners and independent concert promoters have said that these radius clauses are decimating the local music community and significantly hurting their business for much of the year, and that they constitute unfair, anti-competitive practices. Lollapalooza promoters respond that the clauses are standard practice in the concert industry, and that they waive them for any artist who asks to be excused from their requirements.

The standard exclusivity clause, it is reported, restrict bands from playing 180 days before and 90 days after Lollapalooza within a 300-mile radius.  On the waiver issue, C3, the promoter behind Lollapalooza, claims to have never denied an exemption to a requesting artist.

There is no word yet on whether the Illinois AG will file a complaint.  The publicly available facts, however, don’t seem to trigger much of an antitrust issue.  Note that the pro-competitive explanation for exclusivity here is fairly intuitive and recognized by the entire industry (check the links above for representative quotes): C3 makes large promotional and marketing investments to ensure the success of Lollapalooza and has a legitimate economic interest in ensuring that competitors are not allowed to free-ride on those investments.  Exclusivity constrains the ability of rival concert promoters to free-ride by scheduling performances (presumably at lower prices) around Lollapalooza and thus facilitates the output-enhancing investment in the first place.   There are other points to be made about the apparent short duration of the exclusives.

But notice that we’re talking about antitrust efficiency defenses before we’ve made out the plaintiffs prima facie case here.   Absent a demonstration that C3 has market power in the relevant antitrust market, the exclusive is not of antitrust concern.   Without conducting a full market definition exercise, I’m skeptical that C3 has antitrust-relevant market power.  Consider the alternatives available for competing concert owners.  What’s the relevant market?  Well, even narrowly defined, perhaps its an input market involving musicians.  Perhaps musicians who might come play in Chicago?  Perhaps we could further segment the market by genre.  Anyway, I’m skeptical that even under the most narrow plausible market definitions, that C3 has conventional antitrust market power.  Does C3 tie up such a sufficient fraction of artists for show that it is left with no choice?  I doubt it.  And without antitrust market power, I suspect such a complaint wouldn’t go anywhere under the Sherman Act.

NOTE: We discussed similar issues in this post on the Harlem Ambassadors claims against the Harlem Globetrotters, and the contractual arrangements the latter entered into with sports arenas and other venues that would limit the venue’s ability to put on performances from the Ambassadors (or presumably, similar competitors) for 8 weeks prior and 4 weeks after the Globetrotters came to town.  Perhaps unsurprisingly given the above analysis, I argued then that the Globetrotters had little to fear from the Sherman Act.

I’m also very disappointed in the title of my blog post.  Lollapalooza and the Globetrotters in a single post and that was all I could come up with?

Will the FTC Sue Apple?

Josh Wright —  18 June 2010

I don’t know.  But apparently, industry analysts preliminarily think not.   I tend to disagree.  At least, I think its far too early to be confident in either direction. Press reports, such as this one,  are primarily relying on the report of an analyst who correctly points out that Apple’s market share would be an obstacle for a case against Apple:

This week, Google (GOOG) complained that Apple’s new rules on sharing iPhone and iPad user data with advertisers unfairly advantages the company’s own iAd service over rivals like Google’s AdMob – and the government is reportedly looking into the issue. There’s also continued grumbling over the company’s decision not to support the Adobe (ADBE) Flash standard on the iPhone/iPad platform, and the Feds are apparently looking at that issue, as well.

Stifel Nicloas analyst Rebecca Arbogast reviewed the situation in a research note this morning, and finds that Apple has justifications in both cases that support its policies. The Washington-based analyst, who focuses on regulatory issues, said she finds it unlikely the FTC or the Justice Department will sue Apple over either issue, asserting that market share and industry practices are changing so rapidly that the government is unlikely to step in here without a smoking gun.

The conventional wisdom in the press appears to be that a suit is unlikely because Apple probably does not have monopoly power.  For example, in this article, Stanford Law professor Alan Sykes distinguishes Apple from monopolization cases like Microsoft on the grounds that Apple doesn’t have the same quantum of market power, as does Howard University’s Andy Gavil here.

Professors Sykes and Gavil are correct.  Proving that Apple to possess monopoly power in a relevant market is certainly an obstacle to a classic Sherman Act monopolization case.  But I wouldn’t be so sure that the FTC is limiting itself to Section 2 here.  In fact, I’d bet against it.  The FTC’s attempts to breathe some life into Section 5 have been focused on high-tech firms, and involved claims that would be difficult under Section 2.  The contractual restrictions here would bar the use of Google and AdMob advertising software on applications for use on Apple’s iPhone.  I do not think it would be wise to rule out the possibility that the FTC challenges those restrictions under Section 5 of the FTC Ac as an unfair method of competition, continuing its aggressive use of that statute against firms in high-tech industries and in the standard setting context, e.g. Intel, N-Data, and Rambus.  An attack on restrictions such as Apple’s would also be consistent with the Commission’s attempt to use vague and more manipulable “consumer choice” standard as the touchstone of antitrust harm — the restrictions obviously reduce the choice set available to a developer — under Section 5 rather than the conventional “consumer welfare” standard.

In some ways, a case against Apple is an easier sell than the Intel case because the latter turns on exclusivity conditioned on discounts offered to purchasers and passed on to consumers.  In other words, the case against Intel involves a practice with intuitively obvious pro-competitive justifications and the real question is whether the FTC can document concrete evidence of consumer harm to that dominates those benefits.  While Apple’s restrictions also likely have pro-competitive justifications (though I won’t speculate about them here), and are probably but not certainly protected under conventional monopolization doctrine under Section 2 even if Apple were a monopolist, the pro-competitive justifications for the restrictions are not as intuitively obvious as the discounts involved in Intel.

For most if not all of the reasons I discuss in my paper on the Commission’s complaint against Intel, I’d view a Section 5 suit against Apple as a bad development for consumers.  It would also be an interesting test case to examine whether developers would sue under Little FTC Acts in state court follow-on actions for multiple damages.  Nonetheless, Apple’s market share is not an obstacle to a Section 5 claim where there is no monopoly power requirement.  And of course, the FTC was well aware of the burdens it faces under both statutes and the publicly available market share data when it decided to announce the investigation.  While it is quite possible that the FTC does not bring suit at all, or even brings a pure Section 2 claim, my point is that the availability of a Section 5 claim changes the analysis.  Indeed, such a claim would be consistent with Commission’s current views on the appropriate role of Section 5.

Russ Roberts’ brilliant and eagerly-awaited Keynes vs. Hayek rap video is here.  It’s the best economics pop music since Merle Hazzard.  Here are the lyrics:

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

[Keynes Sings:]

John Maynard Keynes, wrote the book on modern macro
The man you need when the economy’s off track, [whoa]
Depression, recession now your question’s in session
Have a seat and I’ll school you in one simple lesson

BOOM, 1929 the big crash
We didn’t bounce back—economy’s in the trash
Persistent unemployment, the result of sticky wages
Waiting for recovery? Seriously? That’s outrageous!

I had a real plan any fool can understand
The advice, real simple—boost aggregate demand!
C, I, G, all together gets to Y
Make sure the total’s growing, watch the economy fly

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

You see it’s all about spending, hear the register cha-ching
Circular flow, the dough is everything
So if that flow is getting low, doesn’t matter the reason
We need more government spending, now it’s stimulus season

So forget about saving, get it straight out of your head
Like I said, in the long run—we’re all dead
Savings is destruction, that’s the paradox of thrift
Don’t keep money in your pocket, or that growth will never lift…

because…

Business is driven by the animal spirits
The bull and the bear, and there’s reason to fear its
Effects on capital investment, income and growth
That’s why the state should fill the gap with stimulus both…

The monetary and the fiscal, they’re equally correct
Public works, digging ditches, war has the same effect
Even a broken window helps the glass man have some wealth
The multiplier driving higher the economy’s health

And if the Central Bank’s interest rate policy tanks
A liquidity trap, that new money’s stuck in the banks!
Deficits could be the cure, you been looking for
Let the spending soar, now that you know the score

My General Theory’s made quite an impression
[a revolution] I transformed the econ profession
You know me, modesty, still I’m taking a bow
Say it loud, say it proud, we’re all Keynesians now

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Keynes] I made my case, Freddie H
Listen up , Can you hear it?

Hayek sings:

I’ll begin in broad strokes, just like my friend Keynes
His theory conceals the mechanics of change,
That simple equation, too much aggregation
Ignores human action and motivation

And yet it continues as a justification
For bailouts and payoffs by pols with machinations
You provide them with cover to sell us a free lunch
Then all that we’re left with is debt, and a bunch

If you’re living high on that cheap credit hog
Don’t look for cure from the hair of the dog
Real savings come first if you want to invest
The market coordinates time with interest

Your focus on spending is pushing on thread
In the long run, my friend, it’s your theory that’s dead
So sorry there, buddy, if that sounds like invective
Prepared to get schooled in my Austrian perspective

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

The place you should study isn’t the bust
It’s the boom that should make you feel leery, that’s the thrust
Of my theory, the capital structure is key.
Malinvestments wreck the economy

The boom gets started with an expansion of credit
The Fed sets rates low, are you starting to get it?
That new money is confused for real loanable funds
But it’s just inflation that’s driving the ones

Who invest in new projects like housing construction
The boom plants the seeds for its future destruction
The savings aren’t real, consumption’s up too
And the grasping for resources reveals there’s too few

So the boom turns to bust as the interest rates rise
With the costs of production, price signals were lies
The boom was a binge that’s a matter of fact
Now its devalued capital that makes up the slack.

Whether it’s the late twenties or two thousand and five
Booming bad investments, seems like they’d thrive
You must save to invest, don’t use the printing press
Or a bust will surely follow, an economy depressed

Your so-called “stimulus” will make things even worse
It’s just more of the same, more incentives perversed
And that credit crunch ain’t a liquidity trap
Just a broke banking system, I’m done, that’s a wrap.

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No it’s the animal spirits

Art and Politics

Todd Henderson —  19 December 2009

When I first met my father in law, he spent hours trying to convince me of the cultural superiority of his tastes. Some of these were indeed triumphs. I’m thinking here of “Dr. Strangelove,” “The 400 Blows,” and the music of Richard Wagner. (Others were not. I’m thinking here of “Children of Paradise,” a movie about mimes.) His love of Wagner is curious; he was born in Israel and almost his entire family was murdered in the Warsaw ghetto. This is not a trivial issue. Hitler loved Wagner too, and used his music for political ends. Wagner was himself a hater of Jews. Accordingly, Israel banned public performance of Wagner’s music nearly six decades ago, and the taboo was not broken until 1995 when “The Flying Dutchman” was played on Israeli radio. Six years later Daniel Barenboim (a Jew) led the Berlin Staatskapelle in a performance of an overture from “Tristan und Isolde” at an Israel Festival, which only reignited the controversy.

I respect my father-in-law’s ability to separate politics and art. But this is also just a necessity for me; listening to only Ted Nugent and watching only Chuck Norris movies would make my leisure time quite depressing. So I pay to see movies by Nora Ephron and Steven Spielberg, and I listen to music by Bruce Springsteen. But maybe there should be lines.

I love the music of “The Clash,” agreeing with a British critic who called them “the only band that matters.” But what should I make of their 1980 album “Sandinista!”? With its red and black colors and vehemently anti-American lyrics, the album is a political disgrace. For instance, the song “Washington Bullets,” which is not an homage to the NBA team of the (then) same name, tells us where the Clash were coming from:

   For the very first time ever
   When they had a revolution in Nicaragua,
   There was no interference from America
   Human rights in America
   Well the people fought the reader,
   And up he flew ...afdb
   With no Washington bullets what else could he do?

But the music is pretty wonderful. Should I put aside the political idiocy and just listen to the music? I’m not sure this can be done. After all, I would never buy an album called “National Socialists!” or “CCCP!”, no matter how incredible the music was. For now, I’ll pass, belieiving that, as cultural critic Wayne Booth wrote, the company we keep matters.

Some Links

Josh Wright —  9 November 2009
  • Larry Ribstein on exempting small firms from SOX
  • Bernie Sanders’ “Too Big to Fail, Too Big to Exist” Bill (but see here)
  • More Professor Birdthistle on Jones v. Harris
  • Michael Ward on the economics of H1N1 (here, here and here)
  • Lots of blogging on the meat market — but I’ve seen nobody discuss what I thought was the most surprising event at the conference, i.e. the disappearance of Starbucks from the hotel

Is Apple Dumb?

Josh Wright —  28 October 2009

The Economist seems to think so, relying on evidence from this new paper by Joel Waldfogel and Ben Shiller.  Waldfogel and Shiller find that, relative to uniform pricing at $.99, alternative pricing schemes including two part tariffs and various bundling schemes could raise producer surplus by somewhere between 17 and 30 percent.  Those are large numbers, which raises the obvious question: why is Apple leaving so much money on the table? Or are they? I doubt it.

Reading the Economist article reminded me of something that I heard from both Armen Alchian and Ben Klein at different points during my UCLA days.  If your model is not predicting the behavior of real world agents you have a choice — blame the model for not predicting the actions of the agents or blame the economic agents for not acting like the predictions of the model.  The right answer is very, very rarely to blame the economic agents.

To be fair, Waldfogel and Shiller themselves explicitly note that they aren’t passing judgment on the uniform pricing scheme (though its a bit unclear exactly what else readers are supposed to do with the results).

That’s from Firefox chief software architect Mike Connor in an interview with PCPro.  Here’s an excerpt suggesting that Mozilla fears that its recent success might lead to antitrust liability in the United States or elsewhere:

Firefox has only just tipped past the 20% mark in worldwide browser market share, and is still a long way away from achieving the 90%+ market share that Internet Explorer enjoyed in its heyday.

Yet, Firefox has a market share of more than 50% in some countries and is hugely popular among PC enthusiasts: Firefox was used by around 40% of visitors to PCPro.co.uk last month, and Connor claims the browser is used by about 80% of visitors to Digg.com.

Connor admits the prospect of achieving monopoly status – defined as two thirds of the market in the US – has been a topic of discussion at Mozilla HQ.

Perhaps there are too such things as false positives.

Its an interesting article (see also here) especially in light of the recent EU investigation of Microsoft’s bundling of IE to the operating system.  Connor also commented that Firefox did not want to be bundled with Windows as a remedy.  The most interesting line of all was that Opera’s complaint that bundling had harmed competition in the browser market was “provably false” because it is “asserting that bundling leads to market share” and “I don’t know how you can make that claim with a straight face.”

It is unknown whether Mozilla Foundation chairperson Mitchell Baker was straight-faced when he wrote this post supporting the EU’s investigation of IE bundling an, of course, offering Mozilla’s assistance in crafting the appropriate remedial response.   The most curious line in Baker’s post, however, is the rebuttal to the proposition that Mozilla’s increasing share across the world is evidence of a competitive marketplace or at least one would not impede equally efficient competitors:

Equally important, the success of Mozilla and Firefox does not indicate a healthy marketplace for competitive products. Mozilla is a non-profit organization; a worldwide movement of people who strive to build the Internet we want to live in. I am convinced that we could not have been, and will not be, successful except as a public benefit organization living outside the commercial motivations. And I certainly hope that neither the EU nor any other government expects to maintain a healthy Internet ecosystem based on non-profits stepping in to correct market deficiencies.

Leaving aside the bit about the non-profit worldwide movement “living outside commercial motivations”, wouldn’t this claim cut the opposite direction.  That is, if bundling IE couldn’t even exclude from the marketplace an apparently spontaneous collective invariant to the profit motive then surely the mere presence of the bundle couldn’t exclude a greedy, profit-seeking rival could it?  I’m not suggesting this is the appropriate way to think about the antitrust analysis here.  But I find the line of argument curious and likely counterproductive.

Over at Doug Lichtman’s IP Colloquium, there is a new (and what looks to be very interesting) program up on the Tenenbaum file-sharing litigation. Here’s the description:

Joel Tenenbaum looks a lot like every other defendant who has been accused by the music industry of illegally sharing copyrighted work online, but with one key difference: his defense attorney is Harvard Law School Professor Charlie Nesson, and Nesson is out to turn his case into a public referendum not only on the music industry’s efforts to enforce copyright through these direct-infringer suits, but also on the copyright rules that make the industry litigation possible.

In this program, we engage Nesson’s key arguments, focusing especially on Nesson’s claim that copyright law’s statutory damages regime runs afoul of constitutional protections against excessive and/or arbitrary civil damages awards.

Guests include Professor Nesson himself; Steven Marks, General Counsel for the Recording Industry Association of America; and three of the leading academic experts on punitive damages: New York University Professor Catherine Sharkey, Florida State Professor Dan Markel, and George Washington University Professor Thomas Colby. UCLA Law Professor Doug Lichtman moderates.

Check it out, and maybe earn a few CLE credits in the process.