Center for the Analysis of Property Rights and Innovation

Center for the Analysis of Property Rights and Innovation

The Center for the Analysis of Property Rights and Innovation (CAPRI) examines the role of property rights and the enhancement of innovation. Intellectual property is intended to promote innovation in expression and invention. Intellectual property is protected by copyrights and patents.

Technologies have threatened to upend the way these property rights work. Suggestions have been made that privately controlled property rights might not be a particularly efficient way to promote creativity in the era of digitization. Some say new and different business models are needed.

CAPRI is dedicated to learning more about these topics. While many of our researchers are based in the Jindal School of Management, many more are from disciplines across campus and throughout the nation.

The institutions and rules for operating in the digital realm have an important impact on productivity. It is important that we get things right. Fundamental to getting things rights is to have an informed understanding of the issues involved. The research supported by CAPRI is helping to lead to such understanding. CAPRI, through its research grants and working paper series, is making a mark on the intellectual landscape.

Stan Liebowitz Director, CAPRI
Ashbel Smith Professor of Managerial Economics

The following are projects that have been funded by the Center during the last few years. These research had impacts on both academic and practical understanding of various economic and management issues.

Academic Year 2016 – 2018
Project Author Abstract
The Motivations to Create Stan Liebowitz and Alejandro Zentner, UT Dallas Economists have long debated the degree to which creative activities were the result of instinctual urges on the part of creators, or the responses of creators to potential pecuniary rewards. In this paper we attempt to provide an empirical answer to this question by using a modern data set covering the book production industry. We find evidence that authors write more new books as their payments for previously written books increase, although at high enough levels of payment their production of new works begins to decline, consistent with a backward bending supply. We also find that few authors are in the backward bending region and that the overall effect of payments is to increase output. Our results are also consistent with the belief that instinctual elements may play a large role in the creation of books although the role of payments is sufficiently large that they seem likely to be the most important factor, overall.
Responding to Oberholzer-Gee & Strumpf’s Attempt to Defend Their Piracy Paper Stan Liebowitz, UT Dallas Felix Oberholzer-Gee and Koleman Strumpf recently responded to some of my negative assessments of their influential 2007 piracy article. In this article i analyze their responses to my assessments. Several of their responses have the appearance of being plausible if they are read without reference to my actual arguments and discussion. A careful reading of my assessments and professors Oberholzer-Gee and Strumpf’s responses, however, reveals that Professors Oberholzer-gee and Strumpf generally misrepresent or ignore my arguments, while making numerous but untested factual assertions that are clearly refuted by the data, when tested. My negative assessments are only further enhanced by the weakness of their response, as well as by a new finding indicating that they mismatched by a week their download data and school vacation data, which would necessarily corrupt their key results.
The Case for Copyright Stan Liebowitz, UT Dallas Most discussions of copyright are steeped in the language of economic efficiency. But the strongest case for copyright lies in the moral concept that individuals should have ownership over the fruits of their labors. The moral right to ownership of creative works is surely as great or greater than the case for ownership of physical goods. Copyright provides this ownership function and it does not, contrary to many claims, provide a monopoly (except in the trivial sense that all ownership provides a technical monopoly over the owned item). In the case of copyright there is no evidence that the moral case conflicts with the economic case, but even if it did, it could be argued that the moral case should dominate the economic case because morality is generally taken to be more important than efficiency. Given the strong moral case for copyright, if efficiency arguments against copyright are to be taken as potential reasons to weaken said rights, those arguments need to have compelling empirical support. Such a burden has not been met by critics of copyright.

Academic Year 2015 – 2016
Project Author Abstract
Unbundling Copyright from Patents to Inform the Analysis of Notice Costs and Monopoly Stan Liebowitz, UT Dallas In this paper I wish to focus on what I believe to be two crucial differences between copyright and patents that, to my mind, require very different analyses and conclusions. The first consideration is the treatment of notice costs, which I believe are of much more import in the case of patents then they are in the case of copyright. The second and older difference is in the claim that intellectual property creates a monopoly.

Project Author Abstract
Innovation and digital-age property rights: a comparative institutional analysis Peter Lewin, UT Dallas Current work on the incentives faced by entrepreneurs emphasizes the “subjective” nature of their knowledge. Entrepreneurial “visions” contradict and compete, implying that at most one of them can be correct. Error is inevitable. Why does this not inhibit entrepreneurial action? This paper will show that, perhaps paradoxically, the presence of this “disequilibrium” in entrepreneurial plans is actually responsible for the miraculous dynamism of the market economy.
Paradise Lost? The Payment of British Authors in 19th Century America’s Copyright Wilderness Stan Liebowitz, UT Dallas The payment by American publishers to British authors during the mid-19th century, when the works of British authors lacked American copyright protection, has been presented as evidence that copyright is unnecessary for authors to be well paid. Empirical support for this claim putatively comes from a UK government investigation. This paper reexamines the evidence put forward in the UK investigation, as well as independent data on contemporaneous payments to British Authors by a leading American publisher. This reexamination concludes that most British authors were not paid by American publishers, and the majority of those who were paid received considerably less than they would have received under copyright. Further, a cartel-like agreement among leading American publishers, and an American market that was larger than the British market, make the American payments to British authors an overestimate of the likely author payments that would exist in a world without copyright.
Internet Adoption and the Survival of Print Newspapers: A Country-Level Examination Daegon Cho (Carnegie-Mellon), Michael D. Smith (Carnegie-Mellon), and Alejandro Zentner (UT Dallas) In this paper we seek to measure the effect of Internet adoption on traditional paid-for daily newspaper circulation and newspaper survival rates. Examining how Internet adoption affects the newspaper industry is not only important for the academic literature on the media industry, but it is also important because newspaper readership increases political participation, and thus changes in newspaper readership can reshape the political landscape.

Project Author Abstract
Quantifying the Impacts of Digital Rights Management and E-Book Pricing on the E-Book Reader Market Jin-Hyuk Kim and Tin Cheuk Leung, U of Colorado The demand for electronic books (e-books) and the e-book readers are complementary. On the one hand, the emergence of e-book readers such as Amazon’s Kindle has triggered the recent growth of the e-book market. On the other hand, several issues in the e-book market can affect the future of the e-book reader market. Considering this complementarity, this paper quantifies the impact of digital rights management (DRM) and discounted e-book pricing on the demand for e-book readers. We collect conjoint survey data to estimate a random coefficient demand model using a hierarchical Bayesian method. Our counterfactual experiments suggest two things. First, Kindle’s and Nook’s market shares would increase by dropping DRM. Consumer welfare would increase seven percent if all e-book readers dropped DRM. Second, an increase in e-book prices would increase iPad’s market share at the expense of that of Kindle and Nook. Consumer welfare would decrease 6 to 10 percent if Kindle’s and Nook’s e-book prices went up by 50 percent.
Entrepreneurship and Emergence – Is It Possible to Get Something for Nothing? Peter Lewin, UT Dallas This paper investigates the following questions. Does entrepreneurship imply emergence? What are the implications of this for entrepreneurship teaching and policy? Emergence implies and is implied by the unpredictable nature of entrepreneurial outcomes and the inability to completely impute the value-added by entrepreneurship. Entrepreneurs appear to catalyze the emergence of something new. Entrepreneurship is indispensible for economic growth and development. On the other hand, it would appear that it is a phenomenon not amenable to economic planning at any detail level. Tight input-output models apply naturally to physical models where matter-energy must be conserved. The covering laws of physics are immutable. There is, however, no comparable covering law for value, and therefore for economic models. Value is created in the process of production. Emergence, in the economic world, need not imply a denial of the tight input-output model in regard to the physical phenomena that underlie production processes – though, pragmatically speaking, that model may not work very well when there are “too many variables” considering all possible mutual and multiple non-linear interactions. Evolutionary models of selection out of complex adaptive processes may work better in this digital age and may thus be applicable to entrepreneurship as well. Empirical investigation suggests that innovation as a general phenomenon is predictably related to certain categories of institutions, policies and cultures. Entrepreneurship tends to flourish in environments where property rights are reliable, where contracts are usually honored, where freedom of expression is encouraged, and so on. Even though the outcomes of entrepreneurial action cannot be accurately predicted, the rules of the game in which such actions are taken, crucially influence those actions, their frequency and their degree of success.
Online Music, Sales Displacement, and Internet Search: Evidence from YouTube Scott Hiller and Jin-Hyuk Kim’ U of Colorado Digital content services have become an important means of enjoying music, and considerable debate exists over the performance rights of sound recordings. In this paper, we exploit the removal of Warner Music content from YouTube in January 2009, and its restoration in October 2009, as a plausible experimental design to investigate the impact of online content availability on music sales and Internet search. To this end, we obtained weekly sales figures for Billboard top 200 albums from Nielsen SoundScan and constructed a globally consistent index of artist keyword search using Google Trends. We find that the blackout had both statistically and economically significant positive effects on album sales, specifically the best-selling albums in a week as effects taper off into insignificance as the top 50 albums are dropped. We find no evidence that the blackout had any causal effects on Internet search for artists.
Disclosing Pending Patents Bernhard Ganglmair, UT Dallas Recent theoretical work (see, e.g., Koenen and Peitz, 2013) has suggested patent applicants frequently forfeit their informational advantage and announce they have a “pending patent” in order to obtain a competitive advantage over their rivals. In the literature this competitive advantage (e.g., as a result of increased uncertainty) has been conjectured but not thoroughly analyzed. For this project we model a tradeoff between positive and negative effects of the applicant’s information disclosure and treat disclosure as a strategic choice variable. We provide conditions under which it is optimal for a patent applicant to reveal proprietary information of a pending patent.
A Critique of Copyright Criticisms Stan Liebowitz, UT Dallas Copyright has been a controversial topic, perhaps since its introduction, but certainly for at least the last century and a half. It is slightly jarring to realize that our current disputes, which often seem so novel and topical, are little more than rehashes of very old discussions. It is also somewhat surprising the extent to which our current debates, even those appearing in academic journals and couched in academic jargon, often rely upon extreme assumptions in an attempt, apparently, to support a particular point of view as strongly as possible. The purview of this Article is to examine some of these questionable assumptions and claims, theoretical and empirical, made by critics of copyright. These claims are part of the mainstream analysis within the academy.

Project Author Abstract
“Online – Offline Channel Synergies: Evidence from the Video Rental Market” Alejandro Zentner, UT Dallas Prior research has investigated the nature of competition between online and brick-and-mortar retailers (Brynjolfsson, Hu, and Rahman 2010; Forman, Ghose, and Goldfarb 2009; Prince 2007). However, online and offline channels can complement each other when both channels belong to a single firm. While businesses have long recognized the synergies between online and offline channels, the nature and extent to which online and offline channels can complement each other have received scant academic study. In this paper we seek to examine these questions using data from a large video rental company that recently closed a substantial number of physical stores. We also examine how the complementarities between online and offline channels is moderated by the characteristics of individual consumers (e.g., heavy versus light users, single channel versus multichannel users, preference for long tail versus superstar tittles).
“Path Dependence: Its relevance to Economics and Antitrust” Stan Liebowitz,UT Dallas and Steve Margolis NC State Path Dependence has become an increasingly important construct in various disciplines, being used to explain how a particular business or social circumstance has come into existence and what the path that has been traveled tells us about a particular circumstance that has come into existence. This article examines the history of the academic discussion of these circumstances and brings the most up to date evidence to this discussion, including what may be the last nail in the coffin for the QWERTY keyboard example.
“How Consumption Patterns Change as Consumers Move Online: Consumer Heterogeneity and Long Tails” Alejandro Zentner UT Dallas Prior literature has documented that the concentration of sales in superstar products is substantially more pronounced in physical stores than in online marketplaces (e.g., Brynjolfsson, Hu, and Smith 2003; Anderson 2006; Brynjolfsson, Hu, and Simester 2011). Although these differences in purchase patterns across channels could be solely due to heterogeneity in the type of consumers using the online versus the brick and mortar channel, Zentner, Smith, and Kaya 2012 document long tail effects for the video rental market even after accounting for selection effects. However, selection effects could still explain an important fraction of the differences between the concentration of sales in physical stores and online for other markets. In this paper we analyze to what extent consumer heterogeneity can account for long tail effects using a large individual level panel database from a large specialty apparel retailer selling through both online and physical store channels. Importantly, consumers from our focal company can exclusively use physical stores, exclusively use online stores, or distribute their purchases across the two channels. Consumer heterogeneity across channels is likely to be larger in this setting compared to the setting examined in Zentner, Smith, and Kaya 2012, where all consumers have an online account.

Project Author Abstract
“Bricks, Clicks, Blockbusters, and Long Tails: How Video Rental Patterns Change as Consumers Move Online” Alejandro Zentner, UT Dallas and Mike Smith, Carnegie Mellon. Management Science, forthcoming Producers are well aware that Internet markets significantly increase product selection versus what was possible in brick-and-mortar markets. What is less well known is how this might change consumption patterns, and in turn what goods should be produced. Answering this question is complicated by the obvious selection effect: if Internet consumers are observed purchasing niche titles, it is not clear whether this behavior derives from the characteristics of the Internet channel, or the characteristics of the consumers who choose the channel. We attempt to address this question using customer-level movie rental data obtained from a national video chain. Our data come from a time where many of this chain’s stores were going out of business, allowing us to observe how consumers change their rental behavior when they are forced to move from the brick-and-mortar to the online channel. The data suggest that when a local brick-and-mortar video store closes and consumers are forced to consume online, these same consumers are significantly more likely to rent “niche” titles relative to “blockbuster” titles — even though blockbuster titles are available in both channels. Thus, our results suggest that a significant amount of the “long tail” consumption observed online is due to the nature of the channel, not just the nature of the consumers choosing the channel.
“Willful Blindness: The Inefficient Reward Structure in Academic Research” Stan Liebowitz,UT Dallas The only reward structure that provides authors an incentive to choose the most efficient sized research teams is strict proration of author credit. Nevertheless, survey evidence indicates that the reward structure used in Economics for at least the last thirty years only incompletely prorates authorship credit, which should lead to inefficiently high levels of coauthorship. A possible reason for incomplete proration is the self-interest of economists with above average levels of coauthorship, a group disproportionately populated by senior economists and thus disproportionately influential. The well-documented increase in coauthorship over the last fifty years, both in economics and academia, may be better explained by the lack of proration than by any shift toward arcane technique or complex statistical analysis. Fictitious authorship, although of dubious ethical status, has the perverse impact of improving the efficiency of authorship when proration is incomplete. Grossly excessive coauthorship, which threatens to make a mockery of authorship itself in several other academic disciplines, may be the path down which Economics is headed if the reward structure is not altered.
“The Measured Impact of Internet Piracy on the Sales and Revenues of Copyright Owners [was A Decade and a Half of Online Piracy: What have we learned?]” Stan Liebowitz, UT Dallas in The Handbook of the Digital Creative Economy, edited by Towse and Handke, Edward Elgar 2013 Napster began the serious anonymous and unauthorized online trading of copyrighted products, only to be replaced by bigger and faster networks. Numerous studies of the impacts of this piracy have been undertaken using various methodologies and sometimes reaching conflicting results. Nevertheless, most studies find the same result: that piracy has hurt, quite seriously, the markets for these products: movies and music. Elsewhere, I have examined the surprising uniformity of results for music. In this paper I broaden the scope to include movies and other markets, such as software and videogames.
“The Effect of the Internet on Advertising Expenditures: An Empirical Analysis Using a Panel of Countries” Alejandro Zentner, UT Dallas Journal of Economic and Management Strategy, forthcoming The Internet can affect advertising expenditures through various channels. Although the traditional news media perceives the increase in Internet use as a challenge to their survival, the effect of the Internet on the assignment of advertising budgets across media outlets is unclear. For example, offline advertising can induce search engine use making online and offline advertising complements. The impact of the Internet on advertising expenditures is also uncertain because the Internet: has made media available for many individuals in places where their consumption was previously either banned or technologically infeasible (e.g. work or mobile), has reduced waste impressions by improving advertising targeting, has changed the nature of many commercial transactions that now obviate the need for paid advertising (e.g. Craigslist), and may also affect advertising equilibrium prices. This paper quantifies the effect of the increase in Internet use on advertising expenditures for both individual media types and overall. I use a panel of ten years of data at the country level containing information on advertising expenditures by medium and Internet penetration for more than eighty countries. I find that the Internet reduced advertising expenditures on both television and print media (newspapers and magazines), but had no effect on radio expenditures. I also find that the Internet reduced total advertising expenditures, including expenditures on both traditional media and the Internet.

Project Author Abstract
“The Metric is the Message: How Much of the Decline in Sound Recording Sales is due to File-Sharing?” Stan Liebowitz, UT Dallas The file-sharing literature has focused mainly on whether file-sharing has decreased record sales, with less attention paid to the size of any decline. Although there is still some contention, most studies have concluded that file-sharing has decreased record sales. What has not been noted is that most estimates indicate that the file-sharing has caused the entire enormous decline in record sales that has occurred over the last decade. This heretofore hidden result is due to the lack of a consistent metric that would allow easy comparability across studies. The task of this paper is to provide such a metric, translate the results reported in the literature into that metric, and then summarizes the results from this exercise.
“What Drives IP without IP? A Study of the Online Adult Entertainment Industry” Kate Darling, MIT Media Lab Existing copyright policy has so far been based largely on abstract economic theory, assuming the correction of a market failure that arises from the nature of information goods. This project contributes to a recent stream of literature that examines the relationship between IP and innovation in individual markets. In the online adult entertainment industry, IP protection has become largely unenforceable over the past two decades. This project qualitatively explores the questions of whether there are factors outside of formal IP that can incentivize adult content production, and to what extent such production is sustainable.
“The Internet as A Celestial TIVO” Stan Liebowitz and Alejandro Zentner, UT Dallas (Under submission.) It appears that the Internet is soon going to fulfill its potential to become a giant on-demand repository of television shows (and movies) available asynchronously. As companies such as Netflix and Hulu increase their activities in this sphere, there are many unanswered questions about the impacts of this transition. In this paper we attempt to foretell the impact of this shift on one key aspect of television viewing: the amount of time viewers devote to it. We use cable and satellite television’s impact on viewing as a proxy for the likely impact that future Internet transmission of programs will have. Using country-based panel data going back to the mid 1990s we find that the increased variety brought about by cable and satellite has had virtually no impact on time devoted to television viewing. We discuss the import of this finding for Internet business models of television transmission.
“Patent Disclosure in Standard Setting” Bernhard Ganglmair UT Dallas and Emanuele Tarantino University of Bologna In this paper we analyze the timing of disclosure of a patent by its owner during the process of industry standard setting. We develop a non-cooperative model of communication with asymmetric information to study the effect of (1) patent validity and strength, (2) the effectiveness of the communication process in developing an industry standard, and (3) a standard setting organization’s disclosure rules on a patent holder’s incentives to disclose the existence of intellectual property early during the process. We empirically test our model using data from standard setting organizations in the ICT sector. Recent litigation and the ongoing debate on the role of antitrust in standard setting underscore the relevance of the results for the evaluation of legal and organizational policy.

Project Author Abstract
Problems using German Schoolkids as an instrument to Measure the Impact of File-sharing Stan Liebowitz, UT Dallas There is an obvious and well understood simultaneity problem in trying to compare illicit download intensity and sales levels for individual songs or albums. In both cases, popular songs or albums will have both high sales and high downloads. It is not clear whether this simultaneity can be broken but attempts have been made to find instrumental variables that might do the job. The most celebrated instrumental variable for this purpose, to explain American record sales, is the number of secondary students on vacation in Germany. In this paper I examine when those vacations occur, the likely impact of those vacations on files available to Americans and the claimed exogeneity of those vacations with American record sales.
Ten Years of File Sharing and its Effect on International Sales of Copyrighted Music: An Empirical Analysis Using a Panel of Countries Alejandro Zentner, UT Dallas This paper seeks to measure the effect of peer to peer file swapping on music sales. We use a panel of twelve years of country level data containing information on physical and digital music sales and Internet and broadband penetration. This data does not only include information going back to a period when file sharing did not exist but that it also includes recent information up to year 2008. We employ Internet connectedness and the speed of the Internet connections as proxies for unauthorized downloading, and study whether physical and total country level music purchases have decayed more rapidly in countries experiencing faster increases in the adoption of file sharing technology. Our results indicate that peer to peer file swapping can explain a reduction in music sales of about the size of the observed decline.
ARMs, Not Subprimes, Caused the Mortgage Crisis Stan Liebowitz, UT Dallas Contrary to popular wisdom, this paper documents that prime loans began their increase in defaults at the same time as subprimes. Prime loans also had a larger increase in default rates and reached unprecedented levels of defaults much earlier than the default rates of subprimes.
Monopoly for me but not for thee Stan Liebowitz, UT Dallas Copyright allows authors with outsized talent to generate rents on their talent. Most authors of creative works do not have such outsized talent and only earn normal rents. Copyright can be removed or weakened however, and there are many calls in the academy to do exactly that. Economic theory also suggests that welfare would be increased if copyright were only allowed to provide revenues to cover the costs of creating the work and thus eliminating the possibility of rents to creators. Symmetry in logic would require attempting to remove all rents based on individual talent everywhere in the economy. This paper investigates the asymmetrical positions taken regarding the earning of rents in other activities not dependent on copyright versus the treatment of rents due to copyright.

Project Author Abstract
Groundhog Day in Economics: The Repetitive fables of typewriters and browsers Stan Liebowitz and Steve Margolis, UT Dallas and NC State We review the economic literature’s continued use of the typewriter keyboard as an example of market failure in spite of our refutation of this claim some 20 years ago. Similarly, we discuss the claim that Internet Explorer’s success (despite its current decline in market share) is due to Microsoft’s ownership of the operating system, a claim that is approaching 15 years and which still ignores the facts.
The Impact of Digital Music Distribution on Physical Sales and Digital Piracy Brett Danaher, Mike Smith and Rahul Telang, Carnegie Mellon University Using as an instrument for digital demand the recent policy change at Apple that allows music labels to choose among three different prices for their artists’ tracks, we ask whether digital sales of music mitigate piracy and whether they cannibalize the traditional physical sales channel. Our dataset includes iTunes sales data as well as CD sales data for all artists of a major music label, as well as data on the daily number of pirated downloads of the same content. With this data we will also explore the question of optimal pricing for digital music, asking whether customers may turn to piracy when the price of digital tracks is increased and whether pirates can be turned into legal consumers when the price of digital downloads is decreased.

Project Author Abstract
Anatomy of a Train Wreck: Causes of the Mortgage Meltdown Stan Liebowitz, UT Dallas This paper examines the government’s attempt to increase homeownership beginning in the mid 1990s. This included an attack on underwriting standards undertaken by virtually every branch of the government since the early 1990s. The decline in mortgage underwriting standards was universally praised as an ‘innovation’ in mortgage lending by regulators, academic specialists, GSEs, and housing activists. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The bubble increased the number of housing speculators with estimates indicating that one quarter of all home sales were speculative sales prior to the bubble bursting. The recent rise in foreclosures is not related to the subprime/prime distinction since both markets had similar size increases in foreclosures that occurred at exactly the same time. Instead, the adjustable-rate/fixed-rate distinction is the key to understanding the rise in foreclosures. This is consistent with speculators turning and running when housing prices stopped rising.
Clash of the Titans: How the Internet Changes the Consumption of Entertainment Stan Liebowitz and Alejandro Zentner, UT Dallas We use a detailed data set of television viewing behavior in cities, by age and gender, to determine how television viewing has changed over time as the Internet has increased its penetration. Our goal is to determine how the Internet has altered television viewing, the leading activity for most Americans outside of work/school and sleeping, for different demographic groups. This will allow an understanding of future changes in consumer usage of their free time and the concomitant economic consequences.
How Reliable is the Oberholzer-Gee and Strumpf Paper on File-Sharing? Stan Liebowitz, UT Dallas This is a lengthy critique of the empirical findings, factual claims, and logic of Felix Oberholzer-Gee and Koleman Strumpf recent lead article in the Journal of Political Economy which found that file-sharing has a benign impact on record sales. In this note I attempt to replicate all the tests and check the facts that use publicly available data. My replication finds results that contradict the claims of Oberholzer-Gee/Strumpf for each of their quasi-experiments. Further, many facts they present do not pass a careful fact-check. I then propose some methodological problems with the main analysis to explain why their main analysis gives results at odds with these other tests, industry facts, and the rest of the literature.
Business Stealing and Market Expansion with Differentiated Products: Entry in the Brazilian Movie Exhibition Industry Alejandro Zentner, UT Dallas and X. Zentner, Universidad Torcuato Di Tella The Brazilian movie exhibition market has experienced a massive change in recent years, with the number of screens doubling in a decade and with the variety of movies available to consumers increasing at a high rate. Due to this unusual and large variation, this market offers an unparalleled opportunity to learn how entry affects the competitive environment, and in particular to learn about how and whether incumbents react to the changes in the competitive environment and in what ways are market outcomes affected. By using a large database of Brazilian daily movie admission tickets per screen for the years 2002 to 2005 – a period in which the number of screens increased by 45% – we aim to determine whether entrants expand the market by increasing aggregate movie theatrical attendance, or whether they mainly steal customers from incumbent theaters. We focus on measuring the business stealing and market expansion impacts of the entry of new screens.
Reflections On The Nature And Scope Of The Concept Of Capital And Its Extension To Intangibles – A Capital-Based Approach to The Firm.” Peter Lewin UT Dallas In Alan Burton-Jones and J.C. Spender This article used to have the title “Can Ideas be Capital: Can Capital be Anything Else?” A recent article suggests that the concept of “capital” cannot be routinely applied to the intangible items usually referred to as intellectual, social or human capital. The authors question whether ideas can be capital. We believe that this inquiry (which may reflect more general doubts) fails to capture the essential nature of capital. A reexamination of the nature of capital leads us to ask instead, “can capital be anything else?” We propose here a reexamination of the concept of capital in the interest of providing a sounder and more unified basis for management studies in the postindustrial, information age. This is more than semantics; conceptual clarity and efficiency through shared understandings can do much to facilitate productive research – it is itself a kind of intellectual capital. We offer a unified capital-based framework for the analysis of firm management and strategy in a dynamic, changing, digitally-based world.

Project Author Abstract
Economic and Policy Implications of Bundling Stan Liebowitz, UT Dallas and Stephen Margolis, North Carolina State University In recent years, several prominent regulatory controversies in seemingly disparate areas of commerce have hinged on bundling of one form or another. We will discuss the general nature of bundling for high technology industries where recent controversies have arisen over bundling in order to determine the similar economic characteristics but also noting where they are different. We hope to cover various controversies including: cable television bundling of channels; selling online songs a-la-carte, as albums, or as a temporary buffet; bundling patents in pools; net neutrality; the use of blanket licenses for music rights; and the bundling of different software components into packages.
Is the Government Subsidizing Piracy? Mike Ward, University of Texas at Arlington The E-Rate Program provides $2.25 billion per year to subsidize Internet access at schools and libraries in the U.S. Besides possibly enhancing educational outcomes of students at schools receiving these funds, these subsidize could have enhanced teenagers’ abilities to illicitly download music. This project investigates the effect of increased subsidies to a school district on music downloading indirectly by measuring their impact on the number and composition of music stores as measured by the U.S. Census Bureau’s County Business Pattern (CBP) data.
Promotion and Piracy in the Movie Industry: The Impact of Movie Broadcasts on DVD Sales and Internet Piracy Michael D. Smith and Rahul Telang, Carnegie Mellon University The movie industry represents one area where digital networks have had a particularly strong impact on economic activity. These digital networks provide copyright holders with new sales and promotional channels for their content, while also providing consumers with new opportunities to obtain high-quality free copies of this content. Broadband access is a necessary condition for movie piracy and the movie industry has argued that the dominant impact of increased broadband Internet penetration will be increased piracy, and reduced media sales. We analyze this hypothesis by applying fixed effects and first difference models to a new dataset quantifying changes in broadband Internet penetration and DVD sales at a local level from 2000 to 2003.
Don’t Play it Again Sam: Measuring the Impact of Radio Play on Record Sales Stan Liebowitz, UT Dallas This paper undertakes an econometric investigation of the impact of radio play on sales of sound recordings using a sample of American cities. The results indicate that radio play appears to have an important negative economic impact, implying that overall radio listening is more of a substitute for the purchase of sound recordings than it is a complement. This research exposes an important fallacy of composition in applying to the entire market a conclusion based upon the positive relationship between radio broadcasts of particular sound recordings and the sales of those particular sound recordings. This finding imposes a more complete view of the implications of economic suggestions to allow the radio/record market to function unhindered by government regulations.
Novelty Requirement in Patent Protection Klaus Kultti and Antti Miettunen, University of Helsinki Novelty requirement is one of the instruments that affects patent quality. While there is a widely recognized need for better patent quality, economists seem to think that novelty requirement is not very important in terms of policy analysis. Particularly in models of cumulative innovations, it is often thought that licensing eliminates any need for restricting patentability possibilities. We assume that scarce research ideas, as well as incentives to invest in R&D, are needed to create an innovation. We examine the hypothesis that it is not optimal to grant a patent to all innovations: if a patent is granted to a low-value innovation, it blocks other innovators from using that idea, even though the other agents might produce a high-value innovation from that idea. With scarce ideas there should, in our opinion, be some level of patentability requirement, and we develop a dynamic model of innovations to examine the optimal degree of novelty requirement.

Project Author Abstract
Measuring Defendant’s Liability in Copyright and Trademark Infringement Stephen Margolis, North Carolina State University This research considers the economic and legal foundations of rules for awarding damages based on copyright or trademark infringement. There is currently a split in the way various Federal Courts of Appeals have treated this issue, and the differences often lead to very different amounts of damages, making a correct economic analysis imperative. The question is whether a defendant is permitted to deduct a portion of business overheads in calculating the profits due to his infringement or whether such overheads are disallowed as expenses in calculating profits. Economists have paid little attention to this problem.
Micropayments and DRM for Intellectual Properties: Price Discrimination, Unbundling, Both, or Neither? Stan Liebowitz, UT Dallas DRM, particularly combined with micropayments, has been portrayed as a dystopia by many writers. The thrust of this paper is to argue that the economic consequences of DRM combined with micropayments have been seriously misunderstood. Instead of leading away from simple pricing toward price discrimination, these technologies are likely to remove a form of inefficient price discrimination and move us back toward what is normally considered a more efficient form of pricing.
Online Sales, Music Downloads and the Changes in Music Specialty Stores Alejandro Zentner, UT Dallas This project uses phonebook records to analyze the entry, exit and survival probability of retail music stores. The first goal of this project is to analyze the effect of file sharing on retail music stores. Using phonebook records for several years across the entire country, I would be able to determine if stores located in areas with high downloading activity have a lower survival probability. The second goal of this project is to use phonebook records to study how entry of supermarkets and other general stores affected the survival probability of specialty music stores.
Testing File-Sharing’s Impact by Examining Record Sales in Cities Stan Liebowitz, UT Dallas The transmission of digitized music files, particularly on file-sharing networks, is having a profound impact on the consumption and production of music. Although previous forms of copying have been found to often have benign effects on copyright owners, the rise in file-sharing has coincided with a steep decline in the sale of sound recordings. This paper attempts to empirically examine whether file-sharing has caused the decline in record sales. It examines the size and pattern of file-sharing and its theoretical impact on record sales. Using a data set for 99 American cities containing information on Internet use, record sales, and other demographic variables, an econometric analysis is undertaken to determine whether cities with the greatest amount of file-sharing have suffered a larger decline in record sales.

Project Author Abstract
Copyright Duration and the Supply of Creative Work Ivan Png, National University of Singapore This research begins by compiling a list of changes in copyright law extending the duration of protection in 28 jurisdictions between 1980 and 2004. It will then study the impact of these extensions on the production of audio-visual work. Multiple regression analysis will be used to study the annual production of each category of creative work, with country-year as the unit of observation. The effect of the extension in duration on the annual production will then be measured. This requires measuring, by country and year, the (a) Annual production (number of titles, total investment in dollars) of audio-visual work and (b) Other national characteristics that might affect the production of creative work – e.g., national income, population, piracy rates.
Spence’s Penguin: Some Economic Explanations of Open Source Octavian Carare, UT Dallas This paper examines how open source software might provide information to coders, in the form of learning which jobs tend to match their abilities, and to employers, who might learn which potential employees have a requisite skill set. Using a theoretical model of signaling I examine these potential information revelation devices, the impact of open source production on the traditional (commercial) mode of software production, and other potential methods for revealing this information.
Creativity or Coercion: Alternative Perspectives on Rights to Intellectual Property Peter Lewin, UT Dallas There has always been a lack of clarity and consensus concerning the meaning of, and justification for, laws that purport to establish ownership in ideas, artistic creations, innovations, inventions and the like. But this issue has never been more important than it is now. This paper is a fundamental examination of the notion of property rights, in general, and as they apply to intellectual property. It entails both an examination of the philosophical-ethical question of the source of property rights as well as an examination of the consequences of alternative intellectual property rights regimes (drawing on whatever empirical evidence exists). Indeed it is shown that rights cannot, in general, be considered in the absence of consequences. This is applied to specific IP examples. The issues of feasible enforcement, burden of proof, and statute versus contract are considered.
The Impact of File-Sharing: Creative Destruction or Just Plain Destruction? Stan Liebowitz, UT Dallas This paper examines the impact of file-sharing on the recording industry, from both an empirical and theoretical perspective. It also considers the impact of file-sharing on the efficient production of copyrighted works and suggests appropriate policy responses to help achieve efficiency.
Law and the Productivity of Copyright Industries Brendan Cunningham, U.S. Naval Academy Strong copyright law, according to economic theory, should enhance the return to intellectual and creative activity. Therefore, a copyright which is either more secure or longer lasting should increase the productivity of copyright industries. This paper quantifies the effect of copyright law on the actual flow of creative works and the research and development expenditures of copyright firms. The project develops and uses a new database measuring the state of copyright internationally.
Identifying Contributions and Returns in Open Source Jai Asundi, UT Dallas This study attempts to answer certain question related to open source software production that have been taken for granted and not previously examined in a rigorous manner. These questions include: Has there been substantial participation in the development of open source software by the open source community or are most developers actually employed by the firm(s) contributing to the software product? Are firms that ‘donate’ previously closed software still investing significantly into the development and retaining control of the software or do professionals outside the firm contribute significantly? What business lessons can firms learn from previous experiences of such ‘donations’ and how can they benefit from the experience overall? Apart from the free availability of the software product, what if any benefits have accrued to the open source community? Finally, what has been the impact of open source development on the quality of the product, as measured by market success?
Economists’ Topsy-Turvy View of Piracy Stan Liebowitz, UT Dallas Although it was once considered inevitable that unauthorized copying would harm copyright owners, it is now understood that this is not necessarily the case. The concept of indirect appropriability played an important role in shaping this newer understanding. In recent years, however, many economists seem to have taken the message from this new understanding too far, seeing gains to the copyright owners from unauthorized copying in every instance of copying, when in reality the instances of such gains are likely to be rather limited. The current literature on this subject, which consists mainly of theoretical models, seems to be badly out of kilter. In this paper I attempt to explain some of the problems and try to provide the outlines of what I believe to be a more balanced and nuanced view of copying. It emphasizes the importance of examining various institutional and behavioral details of individual markets, which are often overlooked by researchers.

Capri research mentioned in the news since 2011

  • BBC News, April 23, 2019
  • Variety, November 8, 2018
  • Forbes, May 7, 2017
  •, April 12, 2016
  • Forbes, October 26, 2015
  • Washington Times, March 4, 2015
  • January 22, 2015
  • Futurezone, December 2014
  • The Register, Nov 26, 2014
  • R Street, July 2, 2014
  • Billboard, June 9, 2014
  • American Spectator, November 14, 2013
  • Wall Street Journal, April 5, 2013
  • Billboard, August 22, 2012
  • International Business Times, July 28, 2012
  • May 18, 2012

Articles published since 2013

In March of 2016 Alejandro Zentner was asked to address a conference at the FCC on the future of television.

In September of 2015, Stan Liebowitz presented “Paradise Lost? The Payment of British Authors’ in 19th Century America,” at the Society for Economic Research on Copyright Issues, in Glasgow Scotland and “Unbundling Copyright from Patents to Inform the Analysis of Notice Costs and Monopoly” at Boston University.

Stan Liebowitz presented the keynote address for the Association for Cultural Economics International in Kyoto Japan, June 22, 2012. He also provided a public lecture (“Tullock Big Ideas About Information Lecture”) where he discussed his research on piracy issues during the last decade at George Mason University in February of 2011, in addition to other presentations.

Alejandro Zentner accepted a one year visiting position at Carnegie-Mellon University in Pittsburgh for the 2011-2012 academic year and also made several presentations.

Bernhard Ganglmair accepted invitations to present papers at NBER Conference on Patents, Standards, and Innovation in Boston on May 7, 2011 and the Zurich Workshop on Economics, Lucerne, Switzerland on September 8-10, 2011, among other invitations.

There were 19 new acceptances among the CAPRI research projects since 2009, as listed below:

  • Conversation with Secrets Bernhard Ganglmair, UT Dallas; and Emanuele Tarantino University of Bologna. Rand Journal of Economics
  • Willful Blindness: The Inefficient Reward Structure in Academic Research Stan Liebowitz, UT Dallas. Economic Inquiry
  • What Drives IP without IP? A Study of the Online Adult Entertainment Industry Kate Darling; MIT Media Lab. Stanford Technology Law Review
  • An Empirical Analysis of Digital Music Bundling Strategies Brett Danaher, Yan Huang, Michael D. Smith, and Rahul Telang [Danaher: Wellesley, others Carnegie Mellon]. Management Science
  • Bricks, Clicks, Blockbusters, and Long Tails: How Video Rental Patterns Change as Consumers Move Online Alejandro Zentner, UT Dallas; and Mike Smith, Carnegie Mellon. Management Science
  • The Hopes and Realities of Copyright Stan Liebowitz, UT Dallas. Milken Institute Review, First Quarter 2014 p. 72-80.
  • How the Lock-In Movement Went off the Tracks Stan Liebowitz and Steve Margolis, UT Dallas and NC State. Journal of Competition Law and Economics, 9(1) 2013, 125-152.
  • Internet adoption and advertising expenditures on traditional media: An empirical analysis using a panel of countries , Alejandro Zentner, UT Dallas. Journal of Economic and Management Strategy, (21) 4, Winter 2012.
  • Clash of the Titans: The Internet as a competitor to Television Review of Economics and Statistics 2012. Stan Liebowitz and Alejandro Zentner UT Dallas.
  • Is Efficient Copyright a Reasonable Goal? George Washington Law Review, Vol 79, Issue 6, September 2011, p1692-1711. Stan Liebowitz, UT Dallas.
  • What are the Economic Impacts of Micropayments for Intellectual Properties? Chapter in Competition, Innovation and Intellectual Property (Edited by G. Ramello and F. M. Scherer), Routledge, 2011. Stan Liebowitz, UT Dallas.
  • Converting Pirates Without Cannibalizing Purchasers: The Impact of Digital Distribution on Physical Sales and Internet Piracy Brett Danaher, Marketing Science Volume: 29 Issue: 6 Pages: 1138-1151 2010. Mike Smith and Rahul Telang, Carnegie Mellon University
  • Reflections On The Nature And Scope Of The Concept Of Capital And Its Extension To Intangibles – A Capital-Based Approach to The Firm.” In Alan Burton-Jones and J.C. Spender, eds. The Oxford Handbook of Human Capital, Oxford University Press, 2010. Peter Lewin UT Dallas
  • Law and Innovation in Copyright Industries, Brendan Cunningham and Jonathon Baker, US Naval Academy, Review of Economic Research on Copyright Issues, Vol. 6, No. 1, pp. 61-82, 2009.
  • Bundles of Joy: The Ubiquity and Efficiency of Bundles in New Technology Markets Stan Liebowitz, UT Dallas and Stephen Margolis, North Carolina State University. The lead article in Journal of Competition Law & Economics. 1 Vol. 5, March 2009, pp. 1-48.
  • Anatomy of a Train Wreck: Causes of the Mortgage Meltdown Housing America: Building out of a Crisis edited by Benjamin Powell and Randall Holcomb, Transaction Publishers, 2009. Stan Liebowitz, UT Dallas.
  • Online Sales, Music Downloads and the Changes in Music Specialty Stores Alejandro Zentner, UT Dallas. Information Economics and Policy Volume 20, Issue 3, September 2008, Pages 288-300..
  • Competing with Free: The Impact of Movie Broadcasts on DVD Sales and Internet Piracy. MIS Quarterly Vol. 33 No. 2, pp. 321-338/June 2009. Michael D. Smith and Rahul Telang, Carnegie Mellon University.
  • 2. ARMs, Not Subprimes, Caused the Mortgage Crisis, The Economists’ Voice Vol. 6: Iss. 12, Article 4 (2009). Stan Liebowitz, UT Dallas.

Since 2009, numerous newspapers and magazines have run stories discussing CAPRI research:

Financial Times – March 22 2011
NY Times – January 15, 2011

Financial Post – Dec 22, 2010
National Post – Sept 22, 2010
Handelsblatt – Jun 28, 2010
Chronicle of Higher Education – Jun 17, 2010
DerBörsianer – Jun 9, 2010
Washington Times – Apr 13, 2010
Billboard Business News – Feb 24, 2010
Wall Street Journal – February 19 2010
New York Times – January 11, 2010

National Geographic – Dec 27, 2009
Business Week – Nov 4, 2009
Financial Post – Oct 23, 2009
Business Week – Sep 17, 2009
Billboard Business News – Jul 30, 2009 and Mar 10, 2009
Billboard – Jul 15, 2009
Forbes – May 28, 2009
Forbes – Mar 24, 2009
Columbus Dispatch – May 18, 2009
Palm Beach Post – May 10, 2009
Washington Times – Jan 9, 2009

The following papers represent the results from the research activities directly supported by CAPRI. The first number in the numbering system represents the academic year. As papers are added to the working paper series it means that the authors have submitted them to peer reviewed journals as well. Many of the working papers below have been published by leading scholarly journals.

The Center for the Analysis of Property Rights and Innovation Board of Advisors provides input and guidance to help direct the center.

Richard Epstein

Epstein is the James Parker Hall Distinguished Service Professor at the University of Chicago, and the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution. Epstein is renowned for his research and writing in a broad range of subjects. He has been an editor of the Journal of Legal Studies and the Journal of Law and Economics. He served as interim dean of the University of Chicago Law School.

William M. Landes

Dr. William M. Landes is the Clifton R. Musser Professor of Law and Economics at the University of Chicago Law School where he teaches economic analysis of law, art law and intellectual property. His writings on these subjects are among the most widely known within the profession. He is an expert in the application of economics to legal problems including torts and antitrust and has written widely in these fields. He has served as president of the American Law and Economics Association. Landes has been the editor of the Journal of Law and Economics as well as the Journal of Legal Studies.

Jacques Lawarree

Dr. Jacques Lawarree is working at the Microsoft Corporation, on leave from the University of Washington where he is an associate professor of economics. He has conducted research on contract theory and economic regulation.

Stephen Margolis

Dr. Stephen Margolis is professor of economics, North Carolina State University. Margolis is well-known for his work on network effects, path dependence, and high technology. He has been chairman of the department of economics for the last seven years and has published numerous articles in journals such as The American Economic Review and The Journal of Business.

Harvey Rosenblum

Harvey Rosenblum is the senior vice president and director of research at the Federal Reserve Bank of Dallas. Rosenblum is the immediate past president of the National Association for Business Economics (NABE). A widely recognized expert on both the national and Texas economies, Rosenblum has written articles for such publications as The Journal of Finance, New York Times, Southwest Economy and The Handbook of Banking Strategy.

The Colloquium for the Advancement of Free-Enterprise Education (CAFÉ) is a new program under the CAPRI umbrella that educates students about the history of economic philosophies, with an emphasis on the workings of free markets. The colloquium began in January 2018 and currently consists of graduate and undergraduate courses. Fellowship money is available for the students selected.

For more information, visit the CAFÉ web page.