The Economics of Symbolic Exchange (eBook)

Alexander Dolgin is Professor and head of the Chair of Economics of Culture at the State University - Higher School of Economics, Moscow. He has published two books and over one hundred research papers and popular articles. The main focus of his research interests is the institutional economics of culture, which covers diverse topics such as the deteriorating cultural selection processes, the economics of creative reputations, the theory of the welfare of culture, the economics of the copyright and many others.

Foreword 5
Preface 10
Contents 13
Introduction 22
A Promising Model for the Music Business 32
The Popular Liberation Movement in Music 32
Pros and Cons of Liberated Music 32
Copyright in Defence of Whose Interests? 35
The Price Structure of Sound Recordings 36
The Economic Basis of Contracts in the Music Industry 38
Peripeteias of the Introduction of Internet Distribution 40
The Elusive Avengers 42
Socio-economic Counterbalances to Copyright 42
Blunting the Pirates' Competitive Edge 43
Lessons of Napster. The Grokster Case 45
The Piracy Business Model 48
RIAA vs the People 49
How Much Does It Cost to Find a Song You Like? 50
The Economics of Sampling 52
The Paradox of Uniform Prices 53
Is It a Good Thing If Prices Are the Same? 54
Why Are Prices Not Differentiated? 56
Is a Different Price Policy Possible? 57
The Vulnerability of Unwrapped Cultural Products 58
The Flea-Market of Sound Recording 58
Adverse Selection in the Sound Recording Industry 60
Navigation: A New Kind of Service in the World of Music 62
The Solution of the Problem of Consumer Navigation: Public Assessment of Perceived Quality 62
How Are Differences of Taste to Be Taken into Account? 63
What Should Reviewers Evaluate in Music? 64
The Invention That Never Was 65
Collaborative Filtration: A Fundamental Solution to the Problem of Navigation 65
The Mechanism of Collaborative Filtration 65
Ringo-The World's First Music Suggestion System: Its History and Its Experience 66
Stopping Filtration 68
The Technology Substitution Trick 70
Who Is Filtering Whom? 71
The Business Version of Collaborative Filtration, or Why You Should Compromise Your Principles 73
Collaborative Filtration and the Price System 75
Recommendation as a Self-sufficient Business 77
An Invention Whose Time Is Yet to Come 78
The Cinema and Theatron Projects: A Field Trial of a Two-Stage Payment System 79
Why Money Rather than Points? 80
How to Constitute a Stock Exchange for Culture 81
Difficulties and Worries 83
Advantages of the New Model 84
The Economic Logic of the Solution Proposed 85
Forerunners of a Cultural Stock Exchange 86
The Real Significance of the New Artist Programme 86
Adverse Selection in the Culture Industries 90
Consumer Navigation in Culture 90
Economics on Culture 93
Business Interests vs the Interests of the Consumer 95
Adverse Selection in Culture: Formulating the Question 98
Information Inequality as a Reason for Rewriting the Market Rules 100
What is a Tendency to Adverse Selection? 100
In Praise of `Lemons' 100
Other Examples of Information Asymmetry: Pre-Contractual Opportunism 101
The Susceptibility of Culture to Adverse Selection 103
Preconditions for the Appearance of Adverse Selection 103
How Adverse Selection Operates in Culture 105
Symptoms of Adverse Selection in Culture 106
Why Is It Difficult to Prove Adverse Selection in Culture? 106
Unification of Prices and Adverse Selection 109
Why Do Suppliers Leave Prices Alone? 110
Block Booking in the Cinema 115
The Main Thing About Price 117
Market Agents' Reactions to Adverse Selection 117
Degeneration of Creative Artists 119
Patronage or the Market? 122
State Patronage or Private Patronage? 125
Degeneration of the Public 128
A Pragmatic Definition of Art 130
The Placebo Effect in Culture 132
Price as a Guide in Fostering Good Taste 133
Overworking the Critics 135
The Cost Disease of Manually Attesting Art 136
Consumer Navigation and the Role of the Critic 136
Where Do Critics Find Pure Water? 139
Collective Professional Assessment 142
Ratings 147
A Survey of Recommender Systems 152
Content Methods of Generating Recommendations 153
Drawbacks 154
Collaborative Systems 154
Collaborative Methods of Generating Recommendations 155
Snags and Drawbacks 157
Hybrid Methods of Generating Recommendations 161
Effectiveness and Dimensionality of Recommendations 162
Tendering for Expert Advice 164
The Economic Logic of Creative Reputations 166
The Impossibility of Insurance and Guarantees 166
Selling Shares in Art 168
The Economic Nature of Cultural Goods 169
The Role of Brands 169
The Distinctiveness of Cultural Goods 170
Unobservable Quality Plus Non-repeatability 172
The Economic Approach to Determining Quality: Search, Experience, Interpretation and Credence 173
The Time-Money Scale of Cultural Consumption 178
Experience vs. Search Goods: Some Difficulties of Classification 179
The Repute of Brand Reputations 180
The Traditional View of Advertising 182
How Economics Currently Views Advertising 184
What Does `To Condition' Mean? 184
Attention Economics 185
Branding and `Cheap Talk' 186
Whom Does an Advertisement Tell About What? 187
Branding as a Rational Modern Version of Sacrifice 187
`Hand-Made' as Sacrifice 188
Reciprocity of Cultural Exchange 189
Genetically Engineering the `Hand-Made' 191
Entry Barriers for Some, Exit Barriers for Others 194
The Ratio of Quality to Advertising 195
Interiors Instead of Cuisine 196
What Influences the Informativeness of Brands and Prices? 197
Branding Strategies 198
Brand Management: Playing by the Rules and Playing Outside the Rules 199
The Example of Mercedes 200
Common Situations in Cultural Branding 201
(Non-)Functional Demand as the Patrimony of Cultural Brands 202
Information Economics of the Fashion Industries 206
Price Discrimination: A Result and Source of Asymmetric Information 207
Bundle Selling 209
The Economic View of Fashion Sales Reductions 210
Ethical Aspects of Sales: Two Negative External Effects 211
Competition in the Fashion Industry 214
How Shock-Proof Are Brands? The Case of Pierre Cardin 217
The Gucci Story 217
Assimilation of Fashion Brands 219
The Overall Trend of Changes in Fashion 220
Stretching a Reputation: The Case of Polo Ralph Lauren 220
What Determines the Pace of Change in Fashion? 223
Luxury Superseded by New Luxury 226
How Is Fashion Born? 227
Aura and Price 228
What Do Fashion and Music Have in Common? 232
Cultural Navigation by the Stars 234
Economic Astrology 234
Stars and Perceived Quality 238
The Blockbuster and the Information Cascade 242
Set a Star to Detonate a Blockbuster 245
Stars and the Films on Offer 246
Poor Reception on the Bush Telegraph 249
Arbitrage in the Ticket Market 251
Speculators as Pilots in the Sea Lanes of Culture 251
Ticket Speculation: The Cradle of Russian Big Business 254
Should Touts Be Done Away With? 255
Laws on Ticket Speculation (Scalping) in the USA 256
What Are Touts For? 257
More on the Advantages and Disadvantages of Touts 259
On the Influence of Speculation on Social Welfare 260
Online versus Offline Sales 261
A Futures Ticket Market as an Alternative to the Speculators 263
Signalling Quality as an External Effect of Piracy 263
Television as a Testbed for Attention Economics 266
TiVo and VoD: Operators in the Leisure Time Market 268
Recommendation in Culture Without the Middleman 269
The Concept of Cultural Welfare 272
Market Measurement of Cultural Value 272
Correlating Price and Value 272
Price, Value, and Scarcity 275
Economic Orthodoxy on Price 276
Consumption as Collecting: The Paradox of Non-decreasing Utility 280
A Utopian Approach to the Measurement of Value 283
Non-market Methods of Determining Cultural Value 284
Techniques Using Revealed Preferences 285
Cultural Value in the Light of Welfare Theory 286
Happiness Economics 286
Welfare Economics and Social Choice Economics 289
Assessing Welfare Through Culture 293
Material Enrichment vs. Personal Cost 294
Quality Personal Time: The Universal Indicator and Goal of Culture 296
Art as a Means of Creating Quality Time 298
Collaborative Filtering: A Means of Indicating Quality Time 300
The Ultimate Goal of Culture: Increasing Symbolic Capital 301
What Is Symbolic Capital? 301
Assessing Symbolic Capital 301
The `Decile Coefficient' of Symbolic Capital 302
A Modified Relational Contract in Culture 304
Money and Donation 305
Money and Micro-Patronage 308
Voluntary Payment Systems 309
The Future of Copyright 311
Copyright as a Bridge between Art and Commerce 311
The Birth of Copyright 314
An Economic Analysis of Copyright 315
What Is Copyright? 315
Testing the Underlying Rationale of Copyright 317
Copyright and the Progress of Digital Technologies 320
The Moral Deterioration of Copyright 320
The Problem of Derivative Creative Products 321
The Blurred Contours of Copyright 323
The Two-Edged Effect of New Technologies 326
Copyright: Does It Do Authors Any Favours? 327
Regulating the Scope of Copyright 328
Is the Law an Ass? 329
The Economic Philosophy of Copyright 331
Copyright and Folklore 333
Example: Leeches in the Village Pond 334
Is a Market Without Copyright Possible? 335
Copyright from the Viewpoint of Symbolic Economics 337
Cultural Communism is Copyleft Plus Collaboration of the Whole Realm of Culture 338
What Is Copyleft? 338
The Anatomy of the Long Tail 341
Conclusion 344
The Marketing of Music Recordings 348
Introduction 348
Overview of Trends in the Sound Recording Industry 348
Some Overall Indicators of the Music Recording Market 351
Types of Sound Recording and Manufacturing Technology 353
Types of Music Products 353
Stages in Creating an Audio Album 353
Encoding (Digitisation) Technology 355
Principles and Formats for Digital Sound Compression 357
Properties of Digital Sound Recording Formats 358
MP3 (MPEG-1 Audio Layer 3) 358
MPEG-2/4 AAC (Advanced Audio Coding)/MP4 359
WMA (Windows Media Audio) 359
OGG Vorbis 359
Musepack (MPEG plus) 360
Real Audio 360
Moving between Formats 360
Types of Media 361
Music Sales Trends by Media Type 361
Compact Disc Manufacturing Technology 365
The Evolution of Digital Data Media 365
Key Players in the Music Recording Market 366
The Major Labels 367
Recent Mergers and Takeovers in the Sound Recording Industry 371
Independent Sound Recording Companies (the Indie Labels) 372
Music Publishers 373
Artists 375
The Artistic Career Ladder 375
The Contract Between the Performer and the Company: Ideology and Key Elements 376
Performers Income and Outgoings 377
Private Enterprise by the Stars 378
Artists' Sales Ratings 378
The Life-Cycle of a Music Product 379
Commercial Outlets and Channels for Promotion 379
Mass Media Channels for Promoting Music 381
Radio 381
Television 381
The Internet 381
Cinema 382
Computer and Video Games 382
The Impact of Different Media on American Consumers 382
Legal Distribution of Albums on Physical Media 382
Retail Distribution of Compact Discs 382
The Role of the Main Store Operators like Wal-Mart 384
Distribution of Compact Discs Through Record Clubs 384
Online Distribution of Music 385
Formation of a Legal Online Music Market 386
Development of the Online Music Market in Europe 387
Legal Online Services Outside the USA and Europe 388
Problems of Creating a Legal Online Business 388
Options for Buying Music on the Internet 389
Price Formation and Price in the Music Industry 390
Typical Production Costs of a CD 391
The Retail Price of Music on CD and Online 394
Economic Indicators of Online Stores 395
The Price Trend 396
Consumer Costs of Obtaining Music Through Various Channels 397
Description of Demand/Consumption 403
Average per Capita Media Usage 403
Consumer Profiles 405
Buyers of Music Products by Age, % 405
Buyers of Music Products by Gender, % 406
Distribution by Buying Activity 406
Distribution of Demand by Country 406
Piracy in the Music Market 407
Pirate Products on Physical Media 407
The Scale of Pirate Markets 407
The Extent of Piracy on Physical Media 412
Levels of Music Piracy by Country, 2004 413
Compact Disc Manufacturing Capacities 414
Transportation Routes of Counterfeit Discs 414
Main Regions for Piracy 415
Illegal Distribution of Digital Music 415
Influence of High-Speed Internet on the Sound-Recording Market 417
The Environment of Online Piracy: Peer-to-Peer Networks 419
What Are Peer-to-Peer Networks? 419
The Evolution of Peer-to-Peer Networks 420
Analysis of File Sharing by Content Type 425
Problems of Peer-to-Peer Network Clients 425
Business Models of Peer-to-Peer Networks 432
Business Models with Free Access to Content 433
Parasite Programs 433
Further Development of Peer-to-Peer Networks 435
The Geographical Distribution of Peer-to-Peer Networks 436
The Level of Global Peering Traffic 438
The Struggle Against Internet Piracy 438
Technical Protection of Content 439
Principles of Protection 439
Persistent Encryption of Content 440
Different Terms for the Sale of Content 441
Informational and Educational Campaign 441
Collaboration with Internet Providers 443
Release of Anti-Piracy Computer Programs 444
Professional Guilds, Societies, and Associations in Russia and the USA for Safeguarding the Interests of Market Participants 444
The International Federation of the Phonographic Industry (IFPI, www.ifpi.org) 444
The Recording Industry Association of America (RIAA, www.riaa.org) 445
The National Music Publishers' Association (NMPA, www.nmpa.org) 445
The Russian Society for Multimedia and Digital Networks (ROMS, http://www.roms.ru/) 445
The Russian Authors' Society (RAO, www.rao.ru) 445
The Russian Society for the Management of Performers' Rights (ROUPI) 446
The Russian Phonographic Association (RFA, www.fonogram.ru) 446
The National Federation of Phonogram Manufacturers (NFPF, www.nfpf.org) 446
Association of DVD Publishers (www.advdp.ru) 446
IFPI Against Piracy 447
Independent Civil Rights Organisations 448
Influence of Macro-Economic Factors on the Sound Recording Market 449
Means of Navigation on the Internet 449
Recommender Systems Based on DSP Technologies 449
Survey of Software for Digital Music Recognition 452
eTantrum 452
Uplister 453
Mongo Music 453
Gracenote (www.gracenote.com) 453
Tuneprint (www.tuneprint.com) 453
Friskit (www.friskit.com) 454
MoodLogic (www.moodlogic.com) 454
Relatable (www.relatable.com) 455
Hybrid Recommender Systems 455
Musicmobs (www.musicmobs.com) 455
MediaUnbound's AudioInsight (www.mediaunbound.com) 456
Personally Attunable Internet-Radio Stations 457
Yahoo's Launchcast (http://launch.yahoo.com/launchcast/) 457
Partnerships of Independent Recommender Systems with Content Providers (Online Music Services and e-Retailers) 458
GenieLab (www.genielab.com) 458
Recommender Systems in e-Commerce 458
Examples of Recommender Systems Used in e-Commerce 459
Amazon.com 459
Recommender Service on OD2 (www.ondemanddistribution.com) 459
The eMusic Recommender Service (www.emusic.com) 461
Upto11 (www.upto11.net) 462
Recommender Systems as a Means of Promoting Independent Performers 462
iRate Radio (http://irate.sourceforge.net) 462
inDiscover (http://indiscover.net/) 463
Users' Ratings of Recommender Systems 463
Recommender Systems and Mobile Phone Communications 466
Personalised menus and content recommendations 466
Juxtaposition of Profiles of People with Similar Tastes 467
Related Markets 468
The MP3 Player Market 468
Types of Players 469
Flash Players 469
CD Players Supporting the MP3 Format 469
Hard Drive (HDD) Players 470
MP3 Players and Their Influence on the Development of the Music Market 470
The Ringtone Market 471
Lawsuits Against Peering Networks 474
The Case of RIAA versus Napster 474
Discussion of Sampling in the Napster Case 474
The Nature and Extent of Napster's Guilt 475
The Grokster Case 476
The chronology of events was as follows: 476
25 April 2003 476
20 August 2003 477
19 August 2004 477
29 March 2005 478
27 June 2005 478
7 November 2005 478
Chronology of Lawsuits After the Closure of Napster 479
19 September 2003 479
19 December 2003 479
February-March 2004 479
25 March 2004 479
May 2004 479
23 June 2004 480
July 2004 480
10 September 2004 480
Late September-early October 2004 480
October 2004 480
8 July 2005 480
5 September 2005 481
September 2005 481
October 2005 481
October 2005 481
November 2005 481
December 2005 481
15 December 2005 481
December 2005 482
February 2006 482
March 2006 482
23 March 2006 482
April 2006 482
Regional Lawsuits Against Peer-to-Peer Networks 482
Lawsuits Against Private Individuals 483
The Betamax Case 483
Types of Free Licenses 486
Public Domain 486
GNU General Public License 486
GNU Free Documentation License 486
Design Science License (DSL) 487
Free Art License 487
Ethymonics Free Music License 487
Creative Commons (CC) 487
EFF Open Audio License 488
Open Music Licenses 489
Mozilla Public License (MPL) 489
Berkeley Software Distribution License (BSD License) 490
MIT License 490
The Theatron and Cinema Projects 492
The Research Topic 492
Tasks of the Research 494
Research Method 494
The Results 495
Theatron Project 495
References 510