12 Jul DOES THE IDEA OF FREE INFORMATION ON THE INTERNET PRESENT NEW OPPORTUNITIES FOR ECONOMIC ACTIVITIES?
The legal protection of copyright law was designed to correct a market failure in markets where information was a significant component of products and where those products exhibited some of the characteristics of a ‘public good’ (particularly the ‘non-rivalry’ aspect of these goods). Theses national legal protections were, to a degree, harmonized through international agreements such as the Bearne Convention. They worked acceptably well in the pre-digital age primarily because costs of production and distribution of illegally copied products (such as VHS tapes) was significant and partly because replication (except on a very small scale) was difficult and required some expertise. The digitalising of information in the form of music on CD’s, films on DVD’s, digital radio and TV, (all files including ‘printed’ works that may be stored on a computer), have radically changed this situation. Now it is possible for millions of consumers to easily make and distribute copies of digital information. The internet can make information ‘free’ or at least freely available. In the light of these developments, groups should attempt one of the following questions.Film and record companies are attempting to control the distribution of their legal property in the digital age by implementing some form of DRM (Digital Rights Management). If this is successful is it likely to increase or preserve the profits of the companies?IF DRM (see above) fails how can artists (musicians and film actors) make an income. Does DRM free music and film mean that their incomes will decrease?Can publishers of traditional books (such as textbooks) make profits in the digital age – explain how they might attempt this.Does the idea of free information on the internet present new opportunities for economic activities? Explain how such a new market would work. Document Preview: Economic Bubbles Products, Profits & Information Classical product Physical product Owner controlled firm (no shareholders) Speculation in future profits impossible Shareholder firm Physical product Separation of ownership from control Speculation in future profits possible through share dealing (trading in information not physical product) Asymmetric information all players dealing in shares do not have the same information Arbitrage possible. Information uncertainty Trading in shares becomes risky Investors may be fooled The herd instinct Louisiana bubble 1720 Company had exclusive right to trade with the French territory of Louisiana Directors exaggerated the wealth of the territory Share price rose by a factor of 300 between 1717 & 1720 Louisiana bubble No physical products asymmetric/faulty information Share price fell back to original price in 1721 Had real consequences in France Other notable bubbles Tulip mania (1637) The South Sea Company (1720) Railway Mania (1840s) Florida speculative building bubble (1926) Japanese asset price bubble (1980s) The Dot-com bubble (19952001) 1997 Asian Financial Crisis Common characteristics trade relates to the prospects of future profits Good information is the key to reasonable predictions Irrational exuberance in the markets Financial crisis 2008 Based on sub-prime house loans in US Mortgages were very risky Crash caused world wide recession Traditional mortgages Long term loan issued by Bank (or Building Society) from depositor assets Secured on physical asset Risk assessed on basis of homeowners ability to pay (job prospects etc.) Securitazation of mortgages Bundles of dissimilar mortgages sold on wholesale money markets (SIV) Funds recycled into further mortgages Securitazation of mortgages Probability of default affecting an SIV decreased Risk decrease – prices increase More funds available for house loans Riskier mortgages (sub-prime) issued The Bubble? The irrational belief that house prices… Attachments: bubbles.pptnew-economy-1….pptRegulation.ppt
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