Professor John Duffy of GW Law School has published "The Marginal Cost Controversy in Intellectual Property" in the Winter 2004 issue of the University of Chicago Law Review. (Available through WestLaw with a credit card.)

It is a useful piece. A common refrain of the copyleft is that the marginal cost of a digital copy of an intellectual product is zero, so, therefore, "economics teaches us" that it should be priced at zero. This is a fallacy, as discussed in Marginalized, akin to the logic of the ancient paradox that proves that Achilles can never catch the tortoise. But the fallacy has serious consequences; it underlies current proposals that intellectual property should be made available for free and financed by a tax-and-subsidy scheme.

Duffy puts the issue in the context of earlier economic debates about industries with high fixed costs, pointing out that the current debate is actually a continuation of a controversy that has gone on in the field of public utilities for a century, and that the same overwhelming objections to subsidy schemes that have been developed in the public utility context apply equally to intellectual property.

My only reservation is that Duffy does not examine critically enough the underlying assumption that marginal cost pricing is in fact a normative standard to which we should aspire. In reality, in an investment-heavy economy the concept is so constrained as to be of almost no practical value, and the effort to attain it by, for example, antitrust authorities is Ahabian.

posted by James DeLong @ 9:50 AM | General

Link to this Entry | Printer-Friendly | Email a Comment | Post a Comment(0)