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2 Rev. Econ. Rsch. on Copyright Issues 1 (2005)

handle is hein.journals/rvwoecrh2 and id is 1 raw text is: Review of Economic Research on Copyright Issues, 2005, vol. 2(1), pp. 1-4 INDIRECT APPROPRIABILITY 20 YEARS ON RICHARD WATT The copying of other media may or may not have impacts similar to those found for photocopying. Only case-by-case empirical in- vestigations of institutions and markets can discover the impacts of these other forms of copying. (Liebowitz, 1985, p. 956). 20 years ago, Stan Liebowitz's famous paper on indirect appropriability was published in the Journal of Political Economy. At the time, it would surely have been impossible to predict the impact that the paper, together with two or three others published in the same journal at around the same time (Novos and Waldman, 1984, and Johnson, 1985), would have on the fledgling area of economics that was being re-born under the label of the economics of copyright.2 In the intervening 20 years, the idea forwarded by Liebowitz - that the ability to copy increases the value that purchasers place on originals, thereby increasing their willingness to pay, and (under certain conditions) allowing sellers of originals to capture the value of copies when originals are priced - has been one of the most provocative, most commented and most applied ideas upon which the economics of copyright rode its way out of the shadows of economic theory. In part, this was surely due to the counter intuitive nature of the idea, something which economists in general seem to embrace with uncanny fervor. It has been said that wherever a counter intuitive result may be hiding, an economist will be lurking around close by. Such is the stuff of which many a great theoretical economics reputation has been made. Indirect appropriability is such a powerful idea because of its simplicity. All stu- dents of undergraduate economics learn about price discrimination, under which a seller can appropriate a greater share of consumer surplus by charging different prices to different consumer groups. Price discrimination is possible, and is profi- table, when different groups of consumers of a single product have different willin- gness' to pay. For the copying example, the differences in willingness to pay are derived from the value of downstream copying, and so if the purchasers of the ori- ginal units that will serve as models for subsequent copies can be identified, then it will be profitable to charge them a higher price than what is charged to other 10f course, the economics of copyright was not first concieved in the mid-1980s, but quite some time before that. Many authors point to Arnold Plant's pathbreaking work as seminal in the field (Plant, 1934), and others have even noted clear foundations in the work of Adam Smith (see Gordon, 2003). However, it is fair to say that it was in the mid-1980s, with the enormous impact of new copying technologies and environments (photocopying of written pages, analog copying of music, and even the first computer programmes), that the economics profession really sat up and took notice. 2Currently, Liebowitz's paper has had over 100 cites, counting several that contain misspellings of the author's name and page number errors. It is the most heavily cited paper in the, admittedly small, field of the economics of copying. 1

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