Thursday, April 27, 2006

Butter now, or more butter later?

U Chicago economist (and one of my favorite professors) Austin Goolsbee has a great column in the NYTimes about the French Parliament ruling that Apple must open the iTunes music store to competition. Currently, music downloaded off the iTunes music store can only be played on Apple's iPod, not competitor players.

Goolsbee points out that the iTunes and the iPod are complementary, improvements in one will boost sales in the other, and that while margins on downloaded songs are slim, Apple continues to invest in and improve the music store to sell more iPods (where margins are higher). By decoupling the linkage, France will remove all of Apple's incentive to improve the music store going forward, and current non-iPod users will get some benefits by being able to use the store. In the long term, however, consumers may not be better off since they would stop benefiting from music store improvements.

This is the same rationale behind all intellectual property rights -- patents, copyright, trade secret, etc. Enabling the producer to enjoy profits today means they will produce more stuff for us tomorrow.

It's not always so simple though -- Microsoft's antitrust trial required them to unbundle internet explorer. I cared a great deal about the outcome of that trial then, but as far as I can tell it had no effect, and it does not seem to matter at all anymore.


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