2. Some Basic Economics of Information Production and Innovation
Information is nonrivalrous (we can both use it at the same time). It is also circular in that it is both input and output to its own production -- building a table requires wood, writing a paper requires other papers. Copyright laws are justified as making information rivalrous and thus creating a market for it but are constrained so that later the result can be used in the circular production process. But how is producing information actually motivated?
Strategies of producers fall along two axes: benefit maximization (using exclusive rights to make money, using nonexclusive rights to make money, using nonexclusive rights to get non-monetary benefits) and cost minimization (using public domain information, using purchased/owned information, and using privately shared information). This results in nine production strategies. Each strategy receives different inefficiencies from copyright law, so a law's effects depend on which strategies are used. But which strategies get used depends on the law.
Which strategies are used also depends on the technology. New technology has made nonmarket strategies more practical, but incumbent firms want to protect their own models by strengthening copyright laws.
Sources cited in the chapter
Other relevant readings
From page 120-121
""As it turns out, repeated survey studies since 1981 have shown that in all industrial sectors except for very few—most notably pharmaceuticals—firm managers do not see patents as the most important way they capture the benefits of their research and developments. They rank the advantages that strong research and development gives them in lowering the cost or improving the quality of manufacture, being the first in the market, or developing strong marketing relationships as more important than patents."
In the case of Open Source the author gave the example of how IBM spends millions on it to gain other benefits of savings here, but the criteria above of branding and strong market gains are ever more relevant. So much so, erroneusly learning from Linux, many copycat projects are exploitatively trying to ride on planting the flag on the mountain, and what they put out even though open, are more of 'market positioning' ploys. A September 2006 case is Compiere been a premier OS player in the Small Medium Business sector, but adopts a Cathedral approach instead. They soon lost the branding advantage to ADempiere been obediently true peer-based community Compiere fork which proves the author's basis in this chapter. The wealth of networking by the community members quickly obliterate whatever advantage Compiere had prior to it going after some funding - the matador's cloth of many OSS ploys. As another more recent case of Redhat vs Oracle shows, such ploys are beginning to show its slip. By such account, other pro-monetary projects such as MySpace, Google, YouTube may suffer the same threats as Netscape, Yahoo! and Hotmail has. ADempiere and another similar OSS fork, Joomla! is living proof that OSS can stay rich for all its members without funding, and in perpetual mode.
Standing-on-the-shoulders-of-giants Effect (37)
Input/Output Circularity (see Standing-on-the-shoulders-of-giants Effect)