Free Against Intellectual Monopoly by Michele Boldrin;David K. Levine

they are not subject to
"piracy." Strikingly, the data shows exactly the opposite.
    The case of Fictionwise.com is an especially instructive natural experiment because, depending on the publisher and author, the site sells some
books in encrypted form and others in unencrypted form. The encrypted
books tend to be by the best-known authors. When we collected data on
September 1, 2002, for example, the most highly rated book (by purchasers)
was encrypted. Both types of books sell for a similar price - about $5 for a
novel. However, Fictionwise.com also provides some sales data: it lists the
top twenty-five recent best sellers and the top twenty-five best sellers for
the past six months. On the randomly chosen date of September 1, 2002,
no encrypted e-book appeared on either list. Almost three years later, on
August 10, 2005 - stop laughing, it took us a while to revise this book -
the situation has changed somewhat in favor of encrypted books but not
dramatically so. Ranging through the same categories, one observes that
the market is now about 50-50 between encrypted and not. Interestingly,
the prices seem to be the same, signaling that either the unencrypted
books are systematically a lot better than the encrypted ones or that the
impact of "piracy" on the demand for legitimate products is quite negligible.
    Data prior to the advent of Fictionwise tells the same story. At that
time there were many outlets, including most of the major publishers, for
encrypted e-books, and only one, Baen, for unencrypted e-books. Here is
a report from author Eric Flint on the success of unencrypted "Webscrip-
tions," compared to other encrypted e-book enterprises:

    Webscriptions, unlike all other electronic outlets I know of, pays me royalties in
substantial amounts. As of now, I've received about $2,140 in electronic royalties
from Baen Books for the year 2000.... That sum is of course much smaller than my
paper edition royalties, but it can hardly be called "peanuts." Every other electronic
outlet I know of, in contrast, pays royalties - if at all - in two figures. My friend
Dave Drake has given me permission to let the public know that his best-earning
book published by anyone other than Baen, in one reporting period, earned him
$36,000 in royalties for the paper edition - and $28 for the electronic edition. And
that's about typical for even a successful book issued electronically [in encrypted
form]. 32
    Interestingly, searching the Gnutella peer-to-peer network on September 1,
2002, and on a number of subsequent occasions, the keyword e-book turns
up several books released by Baen in electronic form. But they are legal
copies of books given away by Baen for free - we found none of the books
that Baen sells.
    In the end, it is difficult to avoid the conclusion that it is the unpopularity
of the music industry with its customers, combined with the inferiority
of the "legitimate" product, that has led to the widespread giving away of
MP3s for the cost of personal time and bandwidth. In the case of products
sold in a superior form at a reasonable price, there appears to be little effort
to trade them on peer-to-peer networks - so much so that the unencrypted
product outsells the encrypted version.
Pornography
    What would the entertainment industry look like without copyright? As
a model, we might examine the segment of the industry for which copyright is not so important. Although the pornography industry is nominally
protected by copyright, it does not receive the type of social approval that
other industries have, and as a result, the industry has not focused on using
the legal system to protect its intellectual monopoly. When we read of the
FBI seizing illegal DVDs in raids in Hong Kong, it seems that they seize
illegal copies of The Sound of Music, not illegal copies of Debbie Does Dallas,
though we suspect that "pirated" copies of the latter are widely sold.
    Despite social disapprobation, in