Cruel, Mean, or Lavish? Economic Analysis, Price Discrimination and Digital Intellectual Property

It is not because of the few thousand francs which would have to be spent to put a roof over the third-class carriages or to upholster the third-class seats that some company or other has open carriages with wooden benches .... What the company is trying to do is to prevent the passengers who can pay the second-class fare from travelling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich . . . And it is again for the same reason that the companies, having proved almost cruel to third-class passengers and mean to the second-class ones, become lavish in dealing with first-class passengers. Having refused the poor what is necessary, they give the rich what is superfluous.1 I. INTRODUCTION This is an essay about economic analysis, price discrimination, and the world of digital content.2 In the interest of full disclosure, I should warn the reader that in this Essay I will take a slightly different attitude towards the economic analysis of intellectual property than most, though perhaps not all, of the contributors to this fascinating symposium issue; I will be focusing on economic analysis as a type of rhetoric. By rhetoric, I do not mean bluster, nor do I mean to suggest that economic analysis is merely an apologia for conclusions arrived at for other reasons.3 I use the term "rhetoric" in a way closer to one of its positive classical senses: something between Aristotle's deliberative rhetoric and the looser sophistic concept, a way of interpreting and understanding "an incomplete, ambiguous and uncertain world."4 Thus, to focus on economic analysis as a form of rhetoric is not an insult to economic analysis, though it is a signal that I think that the answers it provides are more partial, in both senses of that word, and more indeterminate than many economists and most policy-makers seem to believe. In particular, I will be focusing in this Essay on the way in which some of the most important issues in digital intellectual property policy are decided by a pre-reflective process of categorization from which the analysis flows. Information economics as a discipline does indeed enlarge our understanding of some very important intellectual property questions, but I believe that the answers it offers are, on both empirical and theoretical grounds, much more open than is generally accepted. Indeed, one of its main contributions may be in offering us plot-lines and econo-dramas, readymade images of types of dysfunction in information markets that sharpen our perceptions of potential risks and benefits. Unfortunately, it tends to offer them in antagonistic and mutually annihilating pairs. Three further caveats are in order. To say all of this is not to say that the economic analysis of information issues is perceived by economists as having the openness and manipulability that I describe here. Indeed, quite the opposite is true, though I would argue that the source of that certainty has to be sought outside the walls of the discipline itself in less obvious and less scientific processes of classification. Nor is it to say that the consensus among real, as opposed to law-office, economic analysts of intellectual property always aligns with a particular set of economic interests or market institutions; readers will find in this volume a large number of criticisms of both the current agenda of the content industries, and considerable skepticism that the existing institutions of world trade actually offer the benefits to the developing world claimed for them by their defenders. Finally, though I argue that economic analysis is both more open and more indeterminate than some of its practitioners seem to believe, not all viewpoints are equally easy to express in economic rhetoric,5 nor is all economic rhetoric equally pleasing to the public ear. Having said all of this, I hasten to add that economically minded readers impatient with such folderol about rhetoric should find my discussion perfectly conventional in most of its analysis; the only way to make my point is internally, within the structure I am describing. …