"Legal compliance as a barrier to entry! Personally, I love it, because it is so wonderfully entrepreneurial."

Are you being facetious or serious?

We're talking about LEGAL and LEGITIMATE businesses right!!! So, it might take some effort to make sure businesses don't land in court. Its a serious comment to me.

Jim Harper, I think you might have read the statement to imply cost of legal compliance. In that light, I can see instances where there may be undo barriers, but something as simple as licensing content, especially when you know who to license from, does not nearly approach anything as unreasonable as some would put it.

I'm not sure I understand your answer, Noel, but I take this post to be an endorsement of intellectual property regulation *for its effect as a barrier to entry* - without regard to whether it provides the incentives for creation of expressive works. Would you or Jim care to disabuse me of that impression? Do either of you or both believe it is a good thing for Yougle (a new moniker!) to use copyright solely for its suppressive effect on competition?

I'm equally confused with your views on business Jim, so lets try to iron some of this out.

There are many who feel like any kind of compliance is a burden on innovation these days. My response is that legal barriers to entry occur in every industry, and that if a company cannot afford to license IP or get legal counsel, I would question its business plan, and somebody should tell whatever poor VC lent it money.

WRT to your comment ***Do either of you or both believe it is a good thing for Yougle (a new moniker!) to use copyright solely for its suppressive effect on competition?***

I believe Yougle is on the receiving end of copyright disputes, and the general sentiment is that Yougle is the one being suppressed. Perhaps you meant that the Studios are weilding copyright to suppress competition by Yougle.

In any case, your comment implies an endorsement for perfect competition, and when that does not happen, you cite a situation where competiton does not occur or is suppressed. In Yougle's case, simply having to license content from an IP owner is far away from posing any instance of stifled competition. That argument is a stretch.

If YouTUbe did not have the capital to get licenses, it probably planned on establishing a user market, delaying copyright disputes long enough that the Studios would see its bsuienss value grow, eventually be bought out and then take care of the copyright issues. This is exactly what transpired.

What gets me is those who argue for YouTube's handling of copyright as if the company had remained an independent entity, and was not bought out by Google. But YouTube was not a viable business, and any real innovation coming from it will be in the Yougle era, when the copyright issues are handled legitimately.

Noel, I don't understand your response. I encourage you to focus carefully on *what I am saying here* rather than your surmise about what I think, or arguments you are having with others. If you could be as precise as possible with your word choices, that would be helpful too.

Jim DeLong wrote: "Legal compliance as a barrier to entry! Personally, I love it, because it is so wonderfully entrepreneurial."

Copyright is a statutory information regulation. It's regulation, just like environmental laws, licensing of legal and medical practice, public utility regulation, and so on.

Usually, people like us complain when we see incubent providers benefitting from the barriers to entry that statutes and regulations create. We argue against these barriers to entry because the weakened competition they produce reduces consumer welfare.

Here, Jim D. seems to be endorsing barriers to entry in the entertainment industry. I would be interested to learn if Jim (and I'd love for him to speak for himself) endorses copyright *for its role in creating barriers to entry*. Would he, for example, argue that the copyright term on existing works should be extended yet again? This would raise barriers to entry.

If lobbyists for the content industry convinced Congress to extend the copyright term again, would this be "wonderfully entrepreneurial"? Or would it be more like the rent-seeking behavior we see in other industries?

Thank you for bearing with me and answering as clearly and carefully as possible. I found the statement Jim made surprising and want to make sure I understand your thinking.

Jim Harper, to be frank, I have to surmise your positions, as your comments are rather general. If I addressed the wrong issue previously, then perhaps this reply will be more direct.

The comment by J.DeLong is kind of interesting, and kind of funny. It communicates the simple insight that expectation of zero capital need and marginal costs business models will meet practical concerns, such as legal compliance. To those who advocate black markets or businesses on the fringe, it will tick them off. To those who support legitimate commerce, its a truism that compliance is a cost of doing business.

You talk about barriers to entry as if the technology industries suffer from incumbents stifling new enterprise. There is no evidence of this. The empirical research I’ve looked at indicates that incumbents face high turnover rates and competition from new firms, with the industry having low concentratoin of innovating activity and firms entering markets at productive levels. I can send you some writings I’ve done or simply Google my name, plus entry and IPcentral. Remember, it does not matter if a particular company like MP3.com flails, that is the fault of stubborn un unvisionary execs, or that YouTube was under the hotwire, as they probably planned on being bought out and signing copyright licenses; what matters is the general industry.

When you say that J.DeLong endorses regulatory barriers to market entry, consider that any regulation is in some form a barrier, but don’t equate all regulation with unreasonable barriers. What J.DeLong, and I, talk about is reasonable regulation. That is not advocacy for stifling competiton or support for raising transaction costs for companies starting out. I personally believe that the effectiveness of IP policies is their accomodation to small firms. The essence of what we mean is that legal compliance is not a new thing. Those who consider themselves part of some kind of revolution like to think that they are the first to run into transaction costs. But look at a real estate developer who has to scope existing boundary lines, a lawyer who has to earn annual CLE credits or a doctor who must abide by state malpractice-tort laws; the costs of doing business is something everybody deals with.

I won't comment how others at PFF view the CTEA, but personally, I think that act should not have passed, and as it did, should have included some provision limiting future term exensions. I don’t see J.DeLong’s blog implying any position on it though.

Jim Harper, after considering this a bit more, I would encourage you to look at some of my writings on theories of innovation. The theory you espouse above, more or less maps to Ken Arrow's concept of perfect competition: rapid pace of innovation, low risk/capital intensive, services/implementation as important for incumbents. This theory applies to very few industries. It probably does not apply to digital content.

Basically, the points you argue above, of IP as a regulatory barrier to entry that reduces consumer welfare, is incomplete unless you say how that especially applies to a particular industry and at what point consumer welfare decreases. As it stands, I think you're applying Arrow's competition theory to just about every industry under the sun.

Jim Harper,

You characterize copyright as regulation, "just like environmental laws, licensing of legal and medical practice, public utility regulation, and so on." You use that characterization to posit that copyright regulation creates undesireable barriers to entry that enables incumbent providers to weaken competition and reduce consumer welfare.

Do you similarly believe that trespass laws are regulations that create undesirable barriers to entry? After all, they enable the property holder to prevent others from using the property in ways that might increase consumer welfare. Or, what about larceny laws? They enable a car owner to prevent others from taking the car for a spin. Or, laws prohibiting printing of money? They enable the government to prevent others from creating their own $$.

Hey, Alec. Good to see you here. You've at least come up with a response that relates closely to my question.

Given Jim DeL's strong statement, I wanted to clarify whether he supports copyright for its role as a barrier to entry or not. Is it industrial policy that should be used to protect existing businesses? Or not?

I think that's an important question and one that someone should venture to answer.

I didn't posit that copyright creates undesirable barriers to entry. It's certainly possible, but I'm trying to consider and discuss these issues carefully. Alas, I'm not finding this a profitable place to do that. It's really hard when people are trying to force you into one camp or the other.

Because I know you to be a mature participant in debates like this, Alec, I trust you'll be open to careful discussion whenever we do discuss it further.

Noel is right - compliance with the law is a cost of doing business, and obviously any cost is barrier to entry in the sense that entry is easier without it. Thus enforcement of royalty payments for CDs is a "barrier to entry" by unauthorized firms (and one that I guess Cato opposes).

And of course any firm that is complying with the law is going to keep an eye on rivals to ensure that they too must comply. This is true for any regulatory regime, in any area.

My amusement came from the difference between the frontier situation, where YouTube was able to take advantage of the content owners uncertainty about how to proceed to be casual about IP rules and build up its traffic, with the more mature situation, in which YouTube and everyone else will comply. But this too is a commonplace of history, as the law comes to Dodge.

Jim Harper,

I wrote a rather extensive posts on copyright as a regulatory barrier to entry (just like any other regulation or law), talked about the concept of market entry, and even proposed what innovation model is relevant to our discussion.

If I simply needed to explain how a narrow reading of “regulation” can mislead in different context, as Alec did, that would have been easier for me, but I attempted to engage you and explain the amusing irony of J.DeLong’s comment. (its not easy explaining ironies by the way).