Intellectual Property and Monopsony

Joseph and I seem to be on a binge (purge?) of intellectual property posts, collecting piles of facts and observations on the subject. Somewhere in one of those piles we need to make room for the concept of monopsony.

From Wikipedia:

In economics, a monopsony (from Ancient Greek μόνος (monos) "single" + ὀψωνία (opsōnia) "purchase") is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers. As the only purchaser of a good or service, the "monopsonist" may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers.

In entertainment, the norm is to have a huge number of artists trying to sell their products or services to a small number of buyers. Not only are there few buyers but access to these buyers is tightly controlled. The result can be an effective monopsony.

The results can look like this:

CrazySexyCool eventually sold over 11 million copies in the US, and became one of the first albums to ever receive a diamond certification from the RIAA,^[12] and won a 1996 Grammy Award for Best R&B Album and a 1996 Grammy Award for Best R&B Performance by a Duo or Group for "Creep".^[6] However, in the midst of their apparent success, the members of TLC filed for Chapter 11 bankruptcy on July 3, 1995.^[16]

They declared debts totaling 3.5 million dollars, ... the primary reason being that each member of the group was taking home less than $35,000 a year after paying managers, producers, expenses, and taxes.

Here the New York Times spells out some of those expenses:

The arithmetic is simple and sobering for aspiring stars: The average wholesale price of compact discs and cassettes is about $8 a unit. Thus, an artist with a 12 percent royalty rate, which is typical, gets about 96 cents per unit, or $480,000 on a "gold" record. From that, the record label recoups a portion of its advances to the artist for recording costs, music video production, tour support, independent promotional efforts, limousine services and so forth -- often as much as $170,000.

In other words TLC, which was only getting a seven percent royalty rate, was paying for pretty much everything, including a million or so just for the video for "Waterfalls."

The history of popular entertainment is filled with examples of creators selling million (sometimes multimillion) dollar properties for the equivalent of kind words and PEZ. This is not something you find in an efficient market.

A very good point

Tyler Cowen has a very good point:

Social Security offers cash benefits, whereas Medicare is an in-kind benefit, in the form of health care (which in turn is distinct from health, itself another in-kind benefit). Therefore always cut Medicare first.

That's all.

I think there may be come cases where this view is incorrect on the margins. But as a general principle it should be front and center in the public debate (especially given that, at the moment, the two programs are roughly equal in cost).

After all, treatment for medical conditions is nice but basic food and shelter might be preferable, if one can only have one of the two. If one can have both that is obviously better but it is worth noting Paul Krugman's point on which program has sounder finances going forward.

Other degrees of patent protection

Mark has a very interesting post on the length of copyright of intellectual property. I thought that I would compare these laws (which appear to give nearly 100 years of protection) to those for pharmacuetical drugs. From wikipedia:

In the US, drug patents give twenty years of protection, but they are applied for before clinical trials begin, so the effective life of a drug patent tends to be between seven and twelve years.

Medications have enormous development costs, the low end of the estimates are $100 to $200 million dollars (the cost of the clinical trials, alone, is enormous). Yet we are content to give them an effective period of copyright of seven to twelve years.

This is an area of copyright law where we have attempted to balance the need to reimburse development costs with the value of allowing an innovation into the open market. Why do we see laws that are so much stricter with ideas like "Mickey Mouse" and "Superhero"?

It is certainly food for thought!

Alice in Lawyerland: would the laws Disney lobbied for have prevented Disney from existing in the first place?

(disclaimer: I have cashed a number of royalties checks over the years so the following is obviously not an attack on the concept of intellectual property. I like royalty checks. I'm just worried about the consequences of taking these things to an extreme.)

In 1998, the Walt Disney company had a problem: their company mascot was turning 70. Mickey Mouse had debuted in 1928's "Mickey Mouse In Plane Crazy" which meant that unless something was done, Mickey would enter the public domain within a decade. This was a job for lobbyists, lots of lobbyists.

From Wikipedia:

The Copyright Term Extension Act (CTEA) of 1998 extended copyright terms in the United States by 20 years. Since the Copyright Act of 1976, copyright would last for the life of the author plus 50 years, or 75 years for a work of corporate authorship. The Act extended these terms to life of the author plus 70 years and for works of corporate authorship to 120 years after creation or 95 years after publication, whichever endpoint is earlier. Copyright protection for works published prior to January 1, 1978, was increased by 20 years to a total of 95 years from their publication date.

This law, also known as the Sonny Bono Copyright Term Extension Act, Sonny Bono Act, or pejoratively as the Mickey Mouse Protection Act,[2] effectively "froze" the advancement date of the public domain in the United States for works covered by the older fixed term copyright rules. Under this Act, additional works made in 1923 or afterwards that were still copyrighted in 1998 will not enter the public domain until 2019 or afterward (depending on the date of the product) unless the owner of the copyright releases them into the public domain prior to that or if the copyright gets extended again. Unlike copyright extension legislation in the European Union, the Sonny Bono Act did not revive copyrights that had already expired. The Act did extend the terms of protection set for works that were already copyrighted, and is retroactive in that sense.

Mickey had been Disney's biggest hit but he wasn't their first. The studio had established itself with a series of comedies in the early Twenties about a live-action little girl named Alice who found herself in an animated wonderland. In case anyone missed the connection, the debut was actually called "Alice's Wonderland." The Alice Comedies were the series that allowed Disney to leave Kansas and set up his Hollywood studio.

For context, Lewis Carroll published the Alice books, Wonderland and Through the Looking Glass, in 1865 and 1871 and died in 1898. Even under the law that preceded the Mouse Protection Act, Alice would have been the property of Carroll's estate and "Alice's Wonderland" was a far more clear-cut example of infringement than were many of the cases Disney has pursued over the years.

In other words, if present laws and attitudes about intellectual property had been around in the Twenties, the company that lobbied hardest for them might never have existed.

There's nothing unusual about a small company or start-up exploiting lapsed or unenforced copyrights to get a foothold. The public domain has long been fertile ground for stage companies, record companies, publishers, and producers of movies or radio and television; it's just been getting a lot less fertile lately.

Instrumental Variables

Reading this post by Andrew Gelman got me thinking: how do we really know if a variable is an instrument? Demonstrating that a variable is an instrument often seems to be a matter of telling a compelling clinical story but leaves one with strong and unverifiable assumptions.

This is a real issue with the Physician Preference instrument in pharmacoepidemiology where it has the potential to be either a major advance or a blind alley. But how would one know for sure? I suspect that it is more likely the former than the latter but sorting this out with any level of certainty isn't easy.

Any insights out there?

Study: Teacher bonuses don't affect student tests

from the AP:

ATLANTA – A study released Tuesday found that offering performance bonuses to teachers does nothing to raise test scores, raising doubts about the viability of the Obama administration's push for merit pay to improve education.

The study released Tuesday by Vanderbilt University's National Center on Performance Incentives researchers found that students in classrooms where teachers received bonuses saw the same gains as the classes where educators got no incentive.

"I think most people agree today that the current way in which we compensate teachers is broken," said Matthew Springer, executive director of the Vanderbilt center and lead researcher on the study. "But we don't know what the better way is yet."

The ultimate superpower is litigation

As part of our ongoing series on the surreal world of intellectual property (see the last post), here's a fun fact from comic book writer and historian Don Markstein:

Marvel and DC Comics are arch-rivals when it comes to market share in the comic book industry. But they're capable of an amazing degree of cooperation when it comes to maintaining their shared position as the industry's leaders. One of the ways they cooperate is in maintaining a joint trademark on the word "superhero" — as if Charlton, Harvey, Archie, ACG and Gold Key, to name only a few of the dozens that used both the genre and the word back before they established their mutual legal hegemony over it, never existed — to say nothing of Dark Horse, Image and others that use the genre today and aren't permitted to use the word.

In fact, here's a Dell comic book that actually made the term its very title, long before Marvel and DC decided to sew up rights to it. This should serve as a beacon to anyone willing to attempt to withstand the mighty onslaught of their lawyers, and point out that the word was in general use, with nobody even attempting to prevent others' using it, even before Superman.

Graph of the Day -- Copyrights

From Wikipedia:

I'll have more on this later.

Murphy strikes again

If you have ever wondered what else could go wrong, this is a great example.

What makes it tricky is how many different sets of rights need to be balanced. Clearly tenants need time to be able to move. It's obvious that owners need to be able to sell if ownership is to have any real meaning. And the new owners need to be able to actually take possession of their property. But somehow an outcome has happened that is sub-optimal for all involved.

What is it about real estate that makes it a locus of difficult transactions?

Today's Napoleon quote

In handy comics form:

"Heroin's doing the heavy lifting"

I'm pretty sure I'll quote this some time in the near future.


From Kumail Nanjiani:



I first heard this on This America Life. If you enjoyed it, go by and give them a buck. They're good people.

What is rich?

This was a very interesting post by Brad Delong. There is a response by the original author here.

One thing strikes me immediately. If we look at the expected expenses of this particular person, the $60,000 per year in private school costs immediately jumps out as interesting. Perhaps part of why our public schools are having issues is that the Upper Middle class has pulled out of them?

Another thought is interesting; the author suggests that:

Returning to those “small government” days of 2000 would be a start, as this would result in a huge cut in the size of government.

But appears to be against returning to the same tax levels as 2000. At some point I would really like to see more concrete proposals for what to cut in order to make lower taxes a sustainable option.

Alex Tabarrok's literary leverage

There's a very good discussion about superstars and the winner-take-all economy over at Economist's View. Alex Tabarrok argues that the winner-take-all effect in literature can be explained by factors like technology and venue size:

J.K. Rowling is the first author in the history of the world to earn a billion dollars. I do not disparage Rowling when I say that talent is not the explanation for her monetary success. Homer, Shakespeare and Tolkien all earned much less. Why? Consider Homer, he told great stories but he could earn no more in a night than say 50 people might pay for an evening's entertainment. Shakespeare did a little better. The Globe theater could hold 3000 and unlike Homer, Shakespeare didn't have to be at the theater to earn. Shakespeare's words were leveraged.

Tolkien's words were leveraged further. By selling books Tolkien could sell to hundreds of thousands, even millions of buyers in a year - more than have ever seen a Shakespeare play in 400 years. And books were cheaper to produce than actors which meant that Tolkien could earn a greater share of the revenues than did Shakespeare (Shakespeare incidentally also owned shares in the Globe.)

Rowling has the leverage of the book but also the movie, the video game, and the toy. And globalization, both economic and cultural, means that Rowling's words, images, and products are translated, transmitted and transported everywhere - this is the real magic of Ha-li Bo-te.

But it's possible to look at these examples in an entirely different way.

There's no question that technology and the ability to leverage creative works has a tremendous effect on the economics (and therefore the content) of popular culture, but how well does this particular account support that conclusion?

Homer is a bad example partially because he probably never existed, but mainly because the model Prof. Tabarrok describes, traveling performers working small venues, didn't really apply to writers at all. These minstrels were simply repeating stories that they had accumulated. The closest analogy today would be a cover band working bars and small clubs. (Hesiod throws in a bit of a monkey wrench here, but that's a topic for another day.)

If you skip ahead two or three hundred years you do have successful writers like Sophocles having their works performed in large venues. Though it's difficult to draw an analogy between forms of compensation then and now, they were certainly well rewarded for their work. Go on to the Roman era you have successful writers producing book length poems and even novels despite the lack of printing presses.

As for Shakespeare sticking to the stage, this had little to do with the relative cost of books and actors. There were the equivalent of cheap paperback versions of Shakespeare's plays published during his lifetime. There were also productions of his plays away from the Globe. Shakespeare's words were widely leveraged. The problem wasn't technology or venue; it was the lack of modern copyright laws. The revenue went to other people.

Tolkien is a bad example for other reasons. His body of work is small. His books were difficult to translate into other media. Significant sales didn't start until years after the books were written (prompted, in part, by the mistaken belief that the copyright was limited to Britain).

A better example would be Erle Stanley Gardner who had a large body of work, sold more books than Tolkien and was, during his lifetime, adapted into movies, TV, radio, comic books and probably a few other media. Was Rowling better leveraged than Gardner? Sure, but not by as much as you might think.

There is obviously more behind the rise of the superstar author than technology and the ability to leverage words, more than I have time to address now, but if I were to pursue it, I think I'd make the case for this being a story of lobbying and government regulation of the market in the form of copyrights. Technology has changed, but so has the law.




And now, just in case any of the above might be read as a slight against Rowling, I'll let Stephen King have the last word with his comparison of Harry Potter and the Twilight books:

Both Rowling and Meyer, they’re speaking directly to young people… The real difference is that Jo Rowling is a terrific writer and Stephenie Meyer can’t write worth a darn. She’s not very good.

OT: More table gaming thoughts

A Paladin in Citadel has an interesting post on how experience points where awarded in the pre-dungeons and dragons proto-role playing games. Note:

In the fantasy game originally played by Arneson, it was primarily through the recovery, and appropriate expenditure, of long-lost treasure hoards, that characters advanced in levels. Appropriate expenditure is a critical component for all classes, as it is only through the expenditure of gold (and the Wizard's case, both expenditure of gold for the spell-making materials, and time, in creating his spells) in ways meaningful to the character's motivations and interests that the characters can advance.


If you have not taken note yet, let me draw something striking about this experience points system to your attention now. No experience points for monsters killed in D @ D.

I think that this approach has some advantages. One, is that it militates against the recovered treasure being used to shop for the newest and coolest magic item. To expend gold in this manner is to reduce the rate of character advancement. Two, it gives character's goals outside of their adventuring life and makes the creation of a game world a necessary part of character development. Finally, it allows the monsters to remain scary and difficult to fight (as a major goal is to avoid combat, especially if it is mostly risk with little reward).

In more recent edition of dungeons and dragons, advancement is based on either defeating opponents or advancing the plot. However, plot advancement can reduce the options that players have and make them feel less in control of the direction of the game. On the other had, defeating monsters means that the monsters have to be relatively weak in every single combat. After all, with between 10 and 30 encounters per level, a high level character needs to be the victor of hundreds of combats. Not even the great duellists of history tended to manage that!

There is another (subtle) advantage to this approach -- high-level characters will tend to be accomplished in the world. High level wizards will run laboratories and teach apprentices because that is how they generate experience. High level clerics will have supported and developed churches. Even high level fighters will have connection to the world (perhaps as petty nobility) through their investment of their adventuring loot.

It's an interesting system . . .

KIPP and the Teach(er) for America (or you don't know Jake)

Sometimes the most instructive passages are the most painful to read. This account from the New York Times had me wincing every third word (though I will admit to a little schadenfreude at seeing the top of her class at Stanford being outmaneuvered by Jake from Two and a Half Men).

Time permitting I'll do a post on why this was such a disastrous lesson and how a better, more experienced teacher would have done things differently. For now, though, let's approach it from the other side: what would happen if we kept Ms. Nguyen and lost Jake. Putting aside for a moment peer effects, assuming no one else steps up to take the role, how would the Jake-less class be different?

The lesson plan would still be weak, but this is a math class and most of the actual learning in a math class takes place after the lesson when the students start on their worksheets and homework. With more time and a less adversarial relationship with the class, the teacher can go from desk to desk, checking to make sure that problems are being done correctly and helping the students who are having trouble.

Now let's add in the peer effects. Jake has reset the norms of behavior for the class. He has also established that it is possible to jerk the teacher's chain and create great entertainment value with few negative consequences. In a Jake-less class this wouldn't be an issue. The inability to assert authority is only an issue when someone questions it.

In short, losing Jake should produce a substantial gain in student performance and classroom metrics.

Charter schools are designed to be Jake-free zones but none of the effects of removing Jake are likely to show up in the lottery-based analyses so favored by charter school supporters. This creates a fatally flawed set of metrics.

Worse yet, it creates a system of reforms that have, too often, based their claims of success on leaving behind the very students who needed the most help.