When is a market not a market?

May 12, 2008

Illegally reproduced DVD\'s (photo by Huong-Lan via flickr CC-BY)

William Patry had an engaging (albeit esoteric) post a couple of days ago in which he examines a recent federal appeals court ruling about pirated DVD sales.

From what I understand, it looks like the court (circuitously) ruled against the idea that the “relevant retail value” of an unlicensed copy corresponds to the value on any market – including a black market. Patry argues that the logic of the decision is kind of tortured and long-winded given that the court eventually agreed with the earlier decision that had penalized the defendant on the basis of the manufacturer’s retail value of the goods (not the black market wholesale price he actually sold them for).

All the legalese aside, the text of the decision raises a really interesting question that usually flies under the radar of policy debates on unlicensed reproductions of copyrighted works.

In light of the fact that copyright grants licensors the ability to hold a temporary monopoly over informational goods, what constitutes a reasonable price for non-rival goods?

I suspect that courts and politicians accept manufacturer’s suggested retail prices for a whole host of reasons (simplicity, kickbacks, convenience, etc.), but it seems like there’s a case to be made for an alternative calculation based on aggregate market prices (including informal, or “black” markets).

In my experience, informal market prices (especially for things like software and DVD’s) often provide a more accurate picture of what people can and are actually willing to pay for informational goods.

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