Book Review


D-Lib Magazine
February 2001

Volume 7 Number 2

ISSN 1082-9873

Internet Publishing and Beyond: The Economics of Digital Information and Intellectual Property

Reviewed by: William Y. Arms
[email protected]
William Y. Arms is a Professor of Computer Science at Cornell University and Editor in Chief of D-Lib Magazine

Internet Publishing and Beyond: The Economics of Digital Information and Intellectual Property

Edited by Brian Kahin and
Hal R. Varian
243 pages, includes bibliographical references
and index.
ISBN 0-262-61159-7.
The MIT Press
Cambridge, MA: September 2000
$24.95 plus shipping and handling


Every year digital libraries and electronic publishing become more pervasive, yet one fundamental question is still unresolved. What economic and business models will emerge for online information? Innumerable books and articles have been written where pundits describe their view of the future, often on the flimsiest of evidence, but there is surprisingly little solid economic analysis that is accessible to the non-specialist.

This book goes a long way towards filling the gap. It does not attempt to predict the future or prescribe what to do. Instead it performs a more limited and hence more valuable task. This set of nine essays examine whether conventional economic models match the realities of digital information. The viewpoint tends to be that of an organization with information products to sell, which is trying to understand the economic possibilities; however, the insights are equally useful to consumers of information.

The two editors bring a very strong background. Varian, an economist, is Dean of the School of Information Management and Systems at the University of California, Berkeley. He is well known for his thoughtful and eminently readable studies of information on the Internet. Kahin is a lawyer who is now at the University of Maryland. He has a varied background. He has studied information policy in academic life, was legal advisor to the group that established the DVD standard and served as a policy analyst for the White House during the Clinton administration. The editors have assembled a group of authors from economics, information science, law, computing, mathematics and many other disciplines. This is a book about economics, but its authors have wide practical experience of the topics that they are discussing.

The opening chapter by DeLong and Froomkin discusses the technical differences between physical goods and digital information. Most of our views of markets are dominated by physical goods, where sellers can force buyers to pay for the goods they use, where costs have little or no economy of scale, and individuals can see clearly what goods are for sale and what they are buying. Under such circumstances, markets respond to Adam Smith's doctrine of the invisible hand of competition. With digital information, none of these assumptions apply. The authors ponder whether the inherent market balance that open competition provides with physical goods may not apply with information and whether other mechanisms are needed to avoid a winner-takes-all marketplace.

This is followed by two interesting case studies, about advertising as a form of revenue and business models for online newspapers. The second of these two chapters has a fascinating description of the struggles that existing organizations have in adapting. The story of how newspapers appear to have lost the lucrative market for classified advertisements to specialist start-up organizations is a salutary lesson.

Most of the following chapters look at specific aspects of this situation. Sometimes the models help to explain phenomena that we have all observed, but often the conclusions are surprising. For example, in looking at the economics of copy protection for software, Shy describes how unlicensed copying of software or photocopying of journal articles may increase the seller's revenues. Varian has an illuminating chapter on the creation of different versions of goods to encourage those customers who have greater means to pay. Strategies for pricing railway tickets in the nineteenth century help us to understand peculiarities of software licensing.

Several of the chapters discuss bundling. For example, will a publisher of scientific journals gain from selling articles individually, or by bundling them into journals or groups of journals? In practice, publishers have chosen bundling. The article by Bakos and Brynjolfsson shows that, over a wide range of assumptions about demand curves and transaction costs, this maximizes the revenue for the publisher. This chapter illustrates another strength of the book. Complex economic arguments are explained in readable sentences with simple graphs. A few of the other chapters suffer from the inclusion of unnecessarily complex mathematical notation, but mainly this is a book that can be understood without being a specialist.

Many readers of D-Lib Magazine have a special interest in scholarly publishing. As we read this book, perhaps we should ponder the observation made by Fishburn, Odlyzko and Siders that the market for scholarly journals, "is both unstable and full of perverse economic incentives not easily captured by standard economic models." To illustrate this point, and as a final indication of the modern world of scholarly information, the editors of this book are at the University of Maryland and the University of California at Berkeley; the book is published by the MIT Press; yet the copyright belongs to the President and Fellows of Harvard College!

Copyright (c) 2001 William Y. Arms

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DOI: 10.1045/february2001-bookreview