Subject: Re: Chaordic Commons
From: L Jean Camp <jcamp@camail1.harvard.edu>
Date: Tue, 9 Jul 2002 09:59:49 -0400

On Monday 08 July 2002 17:10, Scott Capdevielle wrote:
> Karsten,
> I have heard people use that term "consumptive" good about music and it
> is not accurate.  The Grateful Dead is just one example. Why were these
> guys the most profitable band on the planet if they were giving away a
> "consumptive" good?  Obviously the music represents value that can be
> extracted through a myriad of ways (concerts, cd sales, licensing,
> etc.).  The recorded version of a song may be a consumptive good, but
> the song itself is obviously not.

The concert was the consumptive good. The Dead could sell four nights of 
tickets for $35 each with a capacity of 50,000 people (e.g., Red Rocks, 
Alpine Valley). Every performance of each song was distinct. The tapes 
illustrate how each concert was unique and that no concert could be 
substituted for one missed.

>
> Software is similar.  A compiled piece of code MAY be a consumptive good
> but its source code is not.
>

Some software is infrastructure in particular serve software and underlying 
software. Other software is a consumptive good  --  games particularly 
interactive games.  Which seems to perversely suggest that OS would be more 
successful in games and less successful in infrastructure, were the 
traditional economic models correct.  (Where office software lies on that 
continuim is an interesting question.)

However, here is a consideration of software markets from a different 
conversation with  Wendy Gordon (whose works on IPR are availabe off her web 
site at BU):

> (Wendy Gordon,  Mon Jul 8 17:10:55 2002)
>
> Ordinarily, we rely on the market to encourage resources to flow to where
> they are most socially valuable.  For example, whether the law starts out
> by giving ownership of a piece of fertile land to a good farmer or a bad
> farmer, the person most able to make a profit from the land-- the good
> farmer-- is likely to be the person who bids most for it and into whose
> hands therefore the land comes.  It is for this reason that the market
> system of property and contract is relied upon to serve social as well as
> private ends: whether or not a resource starts out being allocated in a
> socially desirable way, through a process of bargaining it is likely to
> end up serving socially desirable purposes.  
>
> Ordinarily also, what counts as the 'highest valued use' is stable:
> valuation usually does not depend on how the law assigns market
> entitlements. Fertile land is most valuable being farmed skillfully,
> regardless of who starts out owning it.
>
> Sometimes, however, it is not so clear where the 'highest valued' use
> lies.  A substantial body of empirical research shows that in some
> circumstances, changing the starting point-- who owns what-- can change
> the valuations placed on different resource use.  In those cases, market
> participants using property and contract will bargain to different end
> points -- different and conflicting 'highest valued' uses-- depending on
> how the law hands out its initial endowments: who owns what, and how
> ownership is defined.
>
>  This is often referred to as an "endowment effect".
>
> Consider a company fearing destructive competition from an innovation.  If
> the law endowed the company with a right to stop the innovation, it might
> refuse to waive the right no matter how much money it was offered.  Yet if
> the company were not endowed with a right to stop the innovation, it might
> not be able to bid enough to stop the innovators from proceeding. If so,
> the shift in endowment would shift what appears to be the "winning" bidder
> and thus what appears to be the 'highest valued' use.
>
> In cases of endowment effect, then, the neutral tools of property and
> contract cannot reveal where the 'highest valued use' lies, for they will
> lead wherever the initial pattern of endowments happens to lead. In such
> cases, simple deference to property owners is inappropriate. Courts or
> legislatures must intervene to decide where the endowments should be
> placed, and whether or not the innovation or other resource use is
> worthwhile.  
>

This above suggests that the problem with the desktop software market was the 
intial allocation and suggests that markets alone may be unable to solve the 
problem of reduced innovation resulting from closed software. So even if it 
is a concumptive good the market will not work to bring the best good 
forward.  The intial bias of the desktop market to closed may be more than 
the market can overcome. 

regards,
Jean

>