Privilege, Peer Review, and Piracy: Q & A

Three recent posts produced several questions and comments.

Follow the Government Intervention. In “The Market Gives Privilege to No One” I stated that certain groups of professionals do not usually work weekends and that the computer industry’s “24/7” indicates the ultimate in free-market service. “But I work weekends,” protested one doctor and one professor and shock was expressed that I was asking them to work around the clock!

Concerning the latter, no one person that I know of in the computer industry works twenty-four hours a day, seven days a week. The designation “24/7” means that customers can get service whenever they need it; the 24/7 company covers the entire week, around the clock, with service workers. Educational services on Saturdays and Sundays are scarce. Medical services are nonexistent, unless you are willing to subject yourself to waiting six hours or more in a socialized hospital emergency room. Government intervention, especially restriction of the supply of doctors and hospitals in the medical market, creates these service distortions and gives the professors and doctors a privileged life. On the medical market, see "100 Years of Medical Robbery" and "Real Medical Freedom" by Dale Steinreich.

One professor recited a common view that some academics hold: students are not customers, but products to be sold to businesses, that is, students are “work in progress” that become “finished goods” upon graduation. At best, this description of students is metaphor, at worst it is profound insult. The product of education is the knowledge the professor is supposed to be conveying to students and knowledge is what students are buying with their tuition payments. If professors view students as products in a production line, is it any wonder that students feel like numbers on a roster? Why do professors view them this way? Follow the government intervention: because that is precisely how the bureaucracy views students.

Playing the Game. In “Drop Errors and the Trouble with Peer Review” I said that peer reviewers are gatekeepers that prevent or delay the acceptance of innovative ideas. One reader wrote that entrepreneurs are getting around the gatekeepers by establishing online journals.

True. Technological innovation, such as the Internet, has made it easier for writers to get into print without having to jump through the usual hoops and there has been a proliferation of academic journals, many of them online. Much of the proliferation, however, is driven by the publish-or-perish atmosphere of academic life, which is expanding beyond research universities to what used to be called teaching schools. Accreditation requirements for “academic qualification,” usually defined as a certain number of peer-reviewed journal articles—books don't count or, at most, count only as equivalent to one article—have created the need for more outlets to accommodate this increased “original research.”

University administrators have become bean counters and professors plan strategies for getting around the peer-review gatekeepers. Hallway discussion among faculty is about how to play the game.

Is Unauthorized Copying Theft? In “The Market Function of Piracy” I said that pirated goods may function as a free sample in accelerating the acceptance of new products. The question arises, am I defending theft? No, I’m trying to recast the intellectual property debate; I addressed the issue to some extent in a comment I made to my post on the Mises blog.

As Siva Vaidnyanathan said in Copyrights and Copywrongs, “You cannot argue for theft” (p. 253). Neither Vaidnyanathan nor Lawrence Lessig in Free Culture are against intellectual property but both are attempting to rein in the lunacy of recent trends, such as the war against peer-to-peer file sharing and the push for perpetuity in copyrights. Their focus is on reforming intellectual property law to foster creativity, not stifle it. Roll it back, perhaps, to fourteen or twenty-eight years for copyrights.

The problem I have with their discussions, and others, is that interest-group and collectivist terminology dominate. Beginning with the Constitution, the aim of patents and copyrights is “to promote the Progress of Science and Useful Arts.” Why not promote business in general? The aim of intellectual property legislation, they say, is to balance the needs of society with the rights of creators and the public good should dictate when property should go into the public domain. Etc.

When some advocates of intellectual property rights, on the other hand, make a case for the perpetuity, they have the collectivist and utilitarian defenders in a bind. Rights do not expire, they say. Why should my patent or copyright expire? Time limits are arbitrary, justified only on grounds of the public good. It is the failure to answer this argument, I think, that today is causing the continued lengthening of copyright, and to a lesser extent, patent terms.

The fundamental question to be answered in intellectual property debates is, where does your property end and my rights begin? How is it that you can come into my house and tell me that I cannot copy something I already paid you for? Or, to put it in historical context, is intellectual property really property or is it an instance of monopoly power and privilege? Historically, until the mid-nineteenth century, patents and copyrights were considered monopolies granted by the government; that’s why time limits were put on them. And many economists in the nineteenth century considered patents just another form of protectionism.

My knowledge of marketing theory adds an additional perspective to this debate. There are actions creators can take—mainly the relentless search for customers—to market their innovations without resort to patents and copyrights. Clothing designs, for example, are largely unprotected, but some designers, despite the rapid availability of knock-offs, do quite well. By initiating lawsuits, especially the kind that occur today, creators’ actions begin to look like monopoly protectionism cloaked in the self-righteous guise of property rights. Add to this the mind/body dichotomy—namely that creators do not like, and some even despise, having to aggressively market their wares—and you have a case for concluding that patents and copyrights are more about monopoly and less about property.

Property or monopoly. That is the issue. I’m not 100% certain that patents and copyrights are monopolies, but I’m no longer convinced that intellectual property is property. More research on my part must be done. I will have more to say about this topic at some other time.

The Market Function of Piracy

In marketing the most effective way to introduce new products is the free sample. In 1978 Lever Brothers spent $15 million ($47.55 million in today’s currency) delivering a free sample of Signal Mouthwash to two-thirds of all US households. The strategy was a success and the product remained on the market well into the 1990s.

The significance of the free sample is product trial; it gets the product into consumers’ hands. If consumers use the sample and like it, they may go on to buy the product and buy it again and again, that is, become repeat purchasers; they may even spread the good word to others. When repeat purchasing and favorable word of mouth kick in, the product’s sales will experience a shift from slow to rapid growth and management will consider the product a success.

Free sampling is the best method of introducing new products, but it is also the most expensive. Not surprisingly, then, Forbes ASAP magazine[1] reports this alternative way to practice free sampling:

One security manager for a major manufacturer, who asked not to be identified, says she is sure some companies actually view being counterfeited as a boon to their efforts to build brand awareness. After all, she says, if some companies give away merchandise to expand market share, what's not to like about having someone else take on the expense of manufacturing and distributing the goods, as long as they’re high-quality copies?

Imitation is a universal trait of human behavior, ranging from the use of phrases and mannerisms of admired others to the reuse of hummable themes in music, recognizable images in paintings and well-known plots in literature and Disney movies. Imitation is a normal part of the competitive process in growth markets. As the sales of an innovative new product takes off, competitors enter the market with their own, often cheaper, versions.

If the innovative product is patented, competitors make minor design or functional changes to secure their own patents. Knock-offs are unauthorized, usually cheaper copies. And, of course, the innovative marketer often produces its own cheap version, sometimes called a fighting brand, to fend off the competition. Over time real prices in the product category decline and quality improves.

Knock-offs are pirated products. Because they are usually cheaper than the original, knock-offs tend to appeal to a more price-conscious segment of the market; that is, the buyers of pirated products are probably not legitimate prospects for the innovative new product, either because they cannot afford, or do not want to pay, the higher price. Message to the innovative marketer? Either drop the price of the new product or produce a cheaper version—or be the first to exploit a new technology, something the movie and recording industries chose not to do.[2] Many, including these two industries, would rather sue than practice good marketing.

One study found that users of pirated software sufficiently influenced—by word-of-mouth communication—eighty percent of the software’s prospects to buy the legal product and another described several scenarios in which piracy can help increase the sales of legal products.[3] The pirated product functions as a free sample that the innovator does not have to fund.

So what about free copies? How do you compete with free, to state the battle cry of the new Luddites who fear digital technology? It’s done all the time. One of the most dramatic recent instances of this was the strategy of science fiction writer Cory Doctorow who, over the course of three years, gave away 700,000 electronic copies of Down and Out in the Magic Kingdom. Sales of the hard copy went through six printings and surpassed his publisher’s expectations. Many of the downloaders, Doctorow said, did not buy the hard copy and probably would not have regardless, but the giveaway created considerable buzz and a significant minority did buy the hard copy. Compare the experience of the Mises Institute with Omnipotent Government.

Free—no matter where it comes from—can help sell.


1. “Faker’s Paradise,”April 5, 1999, 54.
2. See Ray Beckerman’s "How the RIAA Litigation Process Works" to read how the Recording Industry Association of America uses questionable legal tactics to sue teenagers and grandmothers instead of designing creative money-making uses of P2P file sharing.
3. Moshe Givon, Vijay Mahajan, and Eitan Muller, “Software Piracy: Estimation of Lost Sales and the Impact on Software Diffusion,” Journal of Marketing, 59:1 (January 1995), 29-37; Julio O. de Castro, David B. Balkin, and Dean A. Shepherd, “Knock-Off or Knockout?,” Business Strategy Review, Spring 2007, 28-32. Thanks to Gil Guillory on the Mises Scholars List for alerting me to the former study.

Cross posted on the Mises blog.