Supported Research Projects

CAPRI helps to support a small number of research projects consistent with its mission. The list will change over time as new projects are added. The following are projects that have been funded by CAPRI.

Academic Year 2006 - 2007
Project	Faculty	Abstract
Economic and Policy Implications of Bundling	Stan Liebowitz, UTD 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 subsidies Internet access at schools and libraries in the US. Besides possibly enhancing educational outcomes of students of schools receiving these funds, these subsidies 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 US Census Bureau’s ounty 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	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, UTD	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 economically 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 affect 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.

Academic Year 2005 - 2006
Project	Faculty	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, UTD	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, UTD	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, UTD	The transmission of digitized music files, particularly on filesharing 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.

Academic Year 2004 - 2005
Project	Faculty	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, UTD	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, UTD	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, UTD	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, US 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, UTD, Information Systems	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 UTD, Managerial Economics	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.