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Innovation the loser from book 'expropriation'

By Alan Moran - posted Wednesday, 29 July 2009


The Productivity Commission has recommended terminating restrictions on the parallel imports of books. Such restrictions require the permission of the author's agent, usually the publisher, for the import of the author's books. This allows different prices to be charged in different markets, bringing authors increased remuneration. Higher returns for authors mean more incentive to innovate (the reason for granting patents and copyrights in the first instance).

Copyright is a form of property right and, like all such forms, allows its owner to obtain benefits from its exclusive use.

An owner's entitlement to sell or otherwise dispose of a product as he/she sees fit is fundamental to economic efficiency. This entails charging what the market will bear and, to the extent that it is possible, selling into different markets at different prices.

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In an Orwellian interpretation of "liberalisation", trashing copyright to bring about lower prices has already been used to justify withdrawing parallel import restraints for compact discs.

The Productivity Commission recommends a similar approach to authors' property rights. While this is closer to expropriation than liberalisation, it is plagued with practical considerations.

Arranging and sustaining price differentiation is seldom straightforward. Even though buyers place different values on a product, price uniformity is likely where markets are linked.

Enforcement practicalities often undermine discriminatory price attempts. Price differentiation is easier to arrange with goods that cross political frontiers, since the additional layer of government enables contract enforcement, a basic government function.

However, many governments are reluctant to co-operate when it means higher domestic prices.

Moreover, of particular importance to book importing, the blurring of geographic boundaries, particularly with the growing use of Amazon and eBay, is making it harder to enforce contracts that entail price discrimination.

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A reconsideration of the marketing approach for, books is perhaps inevitable as it becomes increasingly difficult to prevent arbitrage across borders.

This hardly means the removal of parallel importing restrictions on books should be cause for celebration. In reducing writers' ability to price-discriminate, it may lower prices. But reduced returns to authors will discourage provision of new material.

An unwillingness or inability of governments to assist enforcement of contracts that allow price discrimination between markets has considerable implications for the pharmaceutical industry.

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First published in The Weekend Australian Financial Review on July 18, 2009.

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About the Author

Alan Moran is the principle of Regulatory Economics.

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