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06
March
2012

The Networked Information Economy

In the industrial information economy, the dominant mode of information dissemination is based on the broadcast model. Broadcasting occurs when information is produced by the few and distributed to the many in a one-way transaction. The producers represent the active side of the equation; culture is produced on an industrial model characterized by property, and distributed to the masses, whose function is passive – to consume what is produced and distributed.

The industrial model is characterized by high entry barriers and large economies of scale. It is expensive to start a TV station, build a network, newspaper, etc., and to produce content to be delivered over those media. Once sunk costs are incurred, the additional marginal cost of making information available to many users, or of adding users to the network is much smaller. This is what gives industrialized information producers and distributors supply side economies of scale.

The broadcast model of information distribution is also a power dynamic, grounded in the law of property, which is in turn rooted in the concept of exclusivity. Property law creates exclusion mechanisms that establish asymmetrical power over resources. Page 143: Property rules (law) aim to crystallize asymmetries of power over resources which then form the basis for exchanges. E.g., I will allow you to do X (watch TV using this cable system) and you in exchange allow me to do Y (receive payments from your bank account).

The reigning model of information distribution – the broadcast model – is based on the law of intellectual property. Producers have the exclusive right to distribute what is produced; because what is produced in this context is information, it is distributed by means of copies. The law of intellectual property ensures that he consumer remains in the passive mode of consuming; because the consumer is legally prohibited from making unauthorized copies of the information being consumed, he is prohibited from behaving as a producer or distributer in his own right. Benckler explains the rationale for intellectual property as follows:

Information is a non-rival or “public” good because a market will not produce it if priced at its marginal cost, which is zero. Therefore, the market for information production and distribution is necessarily inefficient. The law of intellectual property addresses this inherent inefficiency in the market.

 To say that information is a “non-rival good” is to say that its consumption by one person does not make it any less available for consumption by another person. Once a non-rival good is produced, no additional social resources need be invested in creating more of it to satisfy the next consumer. (Apples are rival goods; if I eat the apple, you cannot also eat it. The social cost of consuming the second apple is the cost of not using the resources needed to grow the second apple (e.g., wood from the tree) in their next best use. By contrast, once Tolstoy has written War and Peace, he need not spend any additional resources in producing an additional manuscript. Economists refer to this as a “public” good because a market will not produce them if priced at their marginal cost, which is zero.

Therefore, in order to provide the author or scientist with income, we regulate publishing – i.e., pass laws that enable publishers to prevent competitors from entering the market. Because no competitors can enter the market for publishing copies of War and Peace, the publishers can price the contents of the book above their actual marginal cost (zero). Then they can distribute some of that revenue to Tolstoy, which gives him incentive to continue creating. That’s the theory on which our model of intellectual property is based.

The law of intellectual property is perfectly suited to – we might say it reflects, enables and produces – the broadcast model of information distribution. By preventing competitors from entering the information distribution market, the law ensures that the distribution chain flows in one direction: from the property rights owner downstream to the consumer, from the one to the many, producer to consumer, active to passive.

Nonetheless, as remarked above, the market for non-rival goods is necessarily inefficient. Welfare economics defines a market as efficient only when the good is priced at its marginal cost; a non-rival good like information can never be sold both at a positive (greater than zero) price and at its marginal cost (which is zero). As a result, information is a natural candidate for non-market production.

In The Wealth of Networks, Benkler explores the non-market production and distribution of culture, enabled by the Internet. More generally, the Internet constitutes the pivot around which our society transitions from the industrial information economy to the networked information economy. Because the Internet facilitates the production and distribution of (a) original, unsponsored culture, as well as (b) perfect digital copies or broadcast cultural objects, in ways that are extremely difficult for intellectual property enforcers to police, the Internet poses a grave challenge to a cultural distribution system based on the idea of exclusive rights, and therefore, to the broadcast model itself.

Benkler develops the argument that non-market, collaborative production and distribution of information tends to strengthen liberal democratic values, including the possibilities of economic and social (or “distributive”) justice. It’s a very optimistic viewpoint; my suspicion is that he underestimates the power of firms with market power, in tandem with captive regulators, to appropriate innovative technologies and practices, then control them, and finally force them into molds that limit the threat they pose to legacy business models, and thereby, their disruptive potential. The emerging tensions surrounding online video distribution provide a good example of this phenomenon.

Benkler’s optimistic vision centers on what he sees as the transition from a mass media-dominated public sphere to a networked public sphere. Public sphere means a set of practices that members of a society use to communicate about matters they understand to be of public concern and that potentially require collective action or recognition (177). The mass-media public sphere is based on the broadcast model: a small number of production facilities produces large amounts of identical copies of communications distribute to a large number of recipients.

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