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Economic Analysis of Technological Protection Measures

Rothchild, John A., "Economic Analysis of Technological Protection Measures" . Oregon Law Review, Vol. 84, 2005 Available at SSRN:

Abstract:

    This article analyzes the impact of market forces on a publisher's decision whether to implement technological protection measures ("TPMs") as a means of preventing unauthorized use of software, music, movies, and other information products in digital formats. TPMs are encryption-based techniques that control the uses that may be made of a digital information good, such as by preventing the copying of a music CD or making it impossible to use a particular copy of a computer program on more than one computer. The article develops an economic model that explains how the use of TPMs affects consumer demand, and considers the conditions that will influence a publisher's decision whether to implement TPMs. This model is the first to take account of the two offsetting effects on consumer demand that implementation of TPMs brings about, namely (1) an increase in demand from users who had previously been making unauthorized use of copies owned by others, but who can no longer do so because of the implementation of a TPM, and (2) a decrease in demand through alienation of existing customers who switch to a competing good that is unencumbered by TPMs. The model is also the first to disaggregate the various empirical conditions that determine whether a publisher will benefit from implementing TPMs.

    An understanding of the incentives that confront publishers deciding whether to implement TPMs is of crucial importance in evaluating the policy choice that Congress made when it enacted the prohibitions against circumvention of TPMs that are contained in the 1998 Digital Millennium Copyright Act. The model presented cautions against any hasty assumption either that publishers will inevitably lock up all of their products behind TPMs, thereby dramatically contracting the scope of the public domain, or that market forces will naturally effectuate the preference of consumers for digital goods that are not encumbered by TPMs.

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