is there a market for ideas

8/14/2019 Is There a Market for Ideas

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Is there a market for

ideas?

Joshua Gans and Scott SternCITE Workshop on Innovation and Information

25th March, 2009

Tuesday, 9 June 2009


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Outline

Motivation and goals

Principles of market design

Nature of ideas

Application to markets for ideas

Repugnance in market for ideas

Here they are!

Conclusion



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A Puzzling Absence



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A Puzzling Absence

Large returns to ideas trading



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A Puzzling Absence


Match with appropriate complementary assets



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A Puzzling Absence



Facilitate widespread dissemination



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A Puzzling Absence




Provide (price) signals for future returns



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A Puzzling Absence




Provide (price) signals for future returns

but rare to see ideas exchanged in an organizedmarket where the price is shaped by outside

options.



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Benefits of multi-lateral trade



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max{v1 c1, 0}



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max{v1 c1, 0} max{v2 c2, 0}



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Benefits of multi-lateral trademax{v1 c1, 0} max{v2 c2, 0}



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Benefits of multi-lateral tradeSurplus from Bilateral Trade = max{v1 c1, 0} + max{v2 c2, 0}max{v1 c1, 0} max{v2 c2, 0}



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max{v1 c2, 0}+

max{v2 c1, 0}



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Outline



Nature of ideas



Here they are!

Conclusion



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What does economics say abouteffective market design?



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Roths conditions:



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Roths conditions:

Thickness



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Roths conditions:

Thickness

Non-congestion



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Roths conditions:

Thickness

Non-congestion

Safety



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Roths conditions:

Thickness

Non-congestion

Safety

Repugnance



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Melbourne housing market

Thickness

Dichotomy between volume oftransactions and ability of

buyers and sellers to useendogenous outside options.

Non-congestion

Issues associated with auction

timing

Market safety

Risks associated with dummybidding and buyer opportunism.



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Kidney exchanges



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Outline



Nature of ideas



Here they are!

Conclusion



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Nature of ideas



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Nature of ideas

We focus on three properties of ideas which impact the challenge ofmarket design in the market for ideas

Refines Romer (1990) on appropriability and non-rivalry

Idea Complementarity: the degree to which the value of an idea ishigher when others have access to other ideas

Value Rivalry: Whether the value of an idea declines when othershave access to the idea

High Value Rivalry: Financial Engineering Algorithm, Process Innovation

Low Value Rivalry: Music, Medical Knowledge

User Reproducibility: The cost to users of reproducing the idea forother potential users

High User Reproducibility: Digital Music (and other digital goods)

Low User Reproducibility: Tacit process innovation



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Outline



Nature of ideas



Here they are!

Conclusion


Thickness in Ideas Markets


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Thickness in Ideas Markets

A generic issue with markets madedifficult by idea complementarity

demand for the package can causehold-up

creation impacted by uncertainty

Strategies

Standard setting organisations Trade conferences

Patent pools

Platform creation (iTunes Apps store)



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Congestion in Ideas Markets


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Congestion in Ideas Markets

Need time to evaluate options

Value rivalry causes incentives to pre-empt

market Strategies

Prizes/Advance Purchase Commitments/Problem

Posting Publication of license terms

Price commitments (iTunes music store)



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Imagine a stock market in which buyers and sellers couldnt find

out the prices at which anyone else sold a share of stock. If youwanted to buy (or sell) a share of stock, you would have to guesswhat it was worth. Willing buyers and sellers would often misseach other. The price at which a sale did close would vary widelyfrom sale to sale. And those who had a source of private or inside

information would be able to exploit others. Surely no one wouldintentionally design a system in which trades had to be blind inthis way.

Patents, however, exist in just such a blind market. Want to know ifyou are getting a good deal on a patent license or technologyacquisition? Too bad. Lemley and Myrhvold, 2008


S f i Id M k


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Safety in Ideas Markets

User-reproducibility means userscan:

Become competitors

Avoid payment (Arrowsdisclosure problem)

Strategies

Bundling Blackmail

Reputation


O li


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Outline



Nature of ideasApplication to markets for ideas


Here they are!

Conclusion


Are Ideas a Repugnant Good?


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Repugnant goods are those for which there are strong social norms (oreven legal constraints) on exchange at a positive price (or at all)

Should the following be permitted.




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Steve Jobs charging a price >> MC for the iPhone?



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p g




A pharmaceutical firm charging a price >> MC for baldness treatment?

A pharmaceutical firm charging a price >> MC for a malaria treatment




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p g






discovered with public funds?




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The right for a record label to prohibit an artist from playing their own music, withheavy penalties for infringement?




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p g








An auction between you and your health insurance company to exclusively accessyour genetic profile?




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p g









Secret payments by the government to journalists and bloggers to expressparticular opinions as their own?




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Secret payments by the government to journalists and bloggers to expressparticular opinions as their own?

The sale of credit for a discovery by a student to a faculty member?



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Information Wants to be Free (Brand, 1984)
http://upload.wikimedia.org/wikipedia/commons/9/97/The_Earth_seen_from_Apollo_17.jpg


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Information Wants to be Free (Brand, 1984)

In many settings, strong moral and values-based argumentsregarding the fact that the price of an idea should be identical toits marginal cost zero

From the consumers perspective, though, there is a huge difference

between cheap and free. Give a product away and it can go viral. Charge asingle cent for it and youre in an entirely different business, one of clawingand scratching for every customer. The psychology of free is powerfulindeed, as any marketer will tell you.. the truth is that zero is onemarket and any other price is another. In many cases, that's the differencebetween a great market and none at all. (Chris Anderson)

While consumers are certainly interested in ideas at the lowest price,some of the strongest voices against prices for ideas are those whoproduce and supply ideas


Dealing with repugnance
http://upload.wikimedia.org/wikipedia/commons/9/97/The_Earth_seen_from_Apollo_17.jpghttp://upload.wikimedia.org/wikipedia/commons/9/97/The_Earth_seen_from_Apollo_17.jpg


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Dealing with repugnance

Accept it as a constraint What are its implications?

Sources in the ideas context Users do not want to pay

Providers do not want to be paid(preference for dissemination)

Intrinsic motivation and social norms

Extreme control rights


Consequences of repugnance


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Psychology of free pricing

Reaction to reach-througharrangements

Metering & usage payments Digital rights management

Consequences

Easier to recover payments fromnon-users (e.g., advertising)

Trade control rights (fixed fee oracquisition) rather than usagepayments (subscriptions orroyalties)


Outline


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Outline





Here they are!

Conclusion


Markets with a zero price


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Most robust and active markets for formal ideas exchange areprecisely those where the price of the ideas is equal to zero

Scientific norms in which the price of an idea is the thin property rightof scientific credit is taken for granted, and seems like a naturalapproach

No room for micro-payments, persistent failures of DRM & SW

subscription models; no pushback against advertising-supported models

Ideas trading appears to be most efficient when there are free norms

Wikipedia

Open source software (creative commons license)

Science (recognition and citation)

Zero price encourages Thickness: quid pro quo exchange

Non-congestion: no strategic behavior to manipulate prices

Safety: if price is zero, nothing left to lose


The Desire to Publish?


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Video 1

Video 2

The Desire to Publish?


Outline
http://www.youtube.com/watch?v=jpv1PuXnPd0http://www.youtube.com/watch?v=jpv1PuXnPd0http://www.youtube.com/watch?v=XOYAuk809fYhttp://www.youtube.com/watch?v=XOYAuk809fY


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Outline





Here they are!

Conclusion


is there a market for ideas

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