FEBRUARY 2000: Research (print version)

Investigations

Douglas Lichtman explores the law and economics of new technology markets
The Law School professor asks provocative questions about when and how legal rules should constrain market activity.

Douglas G. Lichtman has news for you: Monopolies are your friend. Or they can be, anyway. In a forthcoming paper, he argues that the right kind of monopoly in the right kind of market can actually work to the benefit of the consumer as well as that of the firm. Not only that, but he thinks we might eventually want to consider rewriting intellectual-property law to encourage the formation of more such arrangements.

Advocating government intervention is hardly what you’d expect from a law and economics scholar at the University of Chicago. But then, the 28-year-old hasn’t exactly taken the typical path to becoming an assistant professor at the Law School.

First, Lichtman went to Duke University to study electrical engineering and computer science. After graduating from Duke in 1994, he went to Yale Law School--viewed by some scholars as the ideological opposite of the U of C’s Law School--where he published three papers as sole author and earned his J.D. in 1997. Next, he turned down an offer to practice with the Chicago office of Jenner & Block to spend another year at Yale Law School, as the first fellow in its Information Society Project. He joined Chicago’s law faculty in fall 1998.

Teaching and researching, Lichtman says, are ideal ways to unite his interests in public policy and new technology with his passion for problem solving, public speaking, and writing. The U of C’s Law School is an especially good match for him, he says, because of the many fellow law and economics scholars.

When he came to law, Lichtman explains, “mathematics was the intuitive way to approach a problem, to get a rough sense mathematically of how it laid out, how the forces worked.” Law and economics, he adds, is an intellectual framework, a way of thinking that’s not necessarily socially or politically conservative. That’s why he’s not shy about recommending government intervention in the free market when his research indicates that would be best.

“In the kinds of things I do, there are two ways law and strategy interact,” explains Lichtman, who’s also into game theory. “One way is to take the current law as given and ask, how do I play within current law? As a business acting in its own self interest, given the set of rules, what’s my best play? That’s one side of what I do, thinking about what the firms should do. Then there’s the other side, thinking about society’s interests and how law should constrain firms. What strategies do firms play that might be troubling? What strategies do they play that law should support in some way?”

The desire to find answers to those questions, coupled with his background in computers and engineering, led Lichtman to the subject of his latest paper, “Property Rights in Emerging Platform Technologies,” which will be published in the June issue of the Journal of Legal Studies. The paper has particular application to new technology markets where one set of firms handles platform products--such as computers--and another set sells peripheral products--such as modems and software programs. For example, firms like Adobe Systems, Electronic Arts, and Novell sell software programs used on computers marketed by firms like Dell Computer Corporation, Apple Computer, and IBM Corporation.

Problems may arise in such markets, Lichtman argues, early in their development, when a peripheral seller can use discretion in setting prices because its product is still unique. Aldus charged plenty for PageMaker, for example, before Quark came out with QuarkXPress. This strategy, says Lichtman, is problematic because the peripheral firms end up hurting their own profits, platform firms’ profits, and the profits of their fellow peripheral sellers.

He reached this conclusion using a model based on the work of 19th-century mathematician Augustin Cournot. Lichtman calculates that if peripheral developers would charge less for their products, everyone would benefit. If Hewlett-Packard dropped the price of its LaserJet 1100xi printer, for example, it might initially lose money. However, the price drop would be the deciding factor in some consumers’ decisions to purchase a new iMac, so platform sales would rise. In addition to the printer, some of those consumers would also get an Iomega Zip drive to go with the new computer, causing Iomega’s sales to go up. And if Iomega would drop its prices, too, the process would work in reverse so that Hewlett-Packard’s sales--and profits--would increase. All that, and consumers save money, too.

Such price coordination, however, is hard to achieve in an emerging market where technology changes quickly and players are constantly entering and exiting. That’s why Lichtman thinks the courts should help the companies in these markets. Though intellectual-property law has traditionally been interpreted to constrain the influence of platform firms--fearing they would try to keep other firms from developing peripherals--Lichtman favors a broader interpretation that would give platform firms more rights and more influence over other firms’ peripheral prices.

It’s a monopoly of sorts, yes, but a good one, Lichtman argues. “Monopolists raise prices, and by raising prices, they take goods away from people who should be getting them. That’s why we’re usually suspicious of allowing firms to coordinate behavior: We think they’ll behave wholly in their own interests, and against society’s interests. This, by contrast, is one of a family of cases where coordination in the firms’ own interests is good for all of us.”

Because he finds the questions surrounding the platform-peripheral market structure so intriguing, Lichtman plans to continue his studies on the topic--by heading to the mall. There, the mall is the platform firm and the retail stores are the peripheral firms. “If everyone lowers their prices by 1 percent below what they’d like to do on their own,” he explains, “they’d get so much more traffic through the mall that they’d all make more money.” Because shopping centers are more stable than emerging technologies, Lichtman expects to find evidence backing his theory, including examples of coordination in the contracts retailers sign with mall owners. He’s started his research by interviewing real-estate attorneys.

But he’s not forgetting computers. Lichtman plans to take an unusual approach to the Internet and the First Amendment. The question, he jokes, is not free speech--it’s “pricey listening.” What he means is that while it once was costly to print and disseminate information, these days the expense comes in accessing and sorting through an overload of information.

“There’s just too much out there,” he says. “It might be in the First Amendment interest to make sure people are exposed to a lot of ideas. And it might be that today, that interest is going to be served by affirmative intervention--the government helping to organize, giving people tools they need to find things and so on.”

That’s not to say he doesn’t think the market should be allowed to handle that task, though. It all depends on what the data reveal.--K.S.

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Singing musicians
As a young boy, music professor John Eaton attended a performance of La Bohème. Seated in the front row, he was mesmerized as Mimi lay dying at the opera’s climax. But when he glanced down into the orchestra pit, he saw that the piccolo player and the oboist were sound asleep. Their slumber struck a profoundly discordant note with Eaton, one he still recalls with amazement today.

The premiere of Eaton’s latest opera, Travelling with Gulliver, provided a sharp contrast to that scene of dozing musicians. In Gulliver, the instrumentalists prance, dance, and sing across the stage, integral to the drama’s plot. Eaton, one of the world’s foremost composers, served as president, producer, and business manager for the performances of Gulliver and another of his recent creations, Antigone, at the Harold Washington Library Center in Chicago this past December. The one-act dramas--the 15th and 16th operas composed by Eaton--were staged by his own Chicago-based Pocket Opera Company, a group with a mission to bring new music and opera to the masses.

“I believe that if new music is put together with drama, it communicates much more readily and the audiences get caught up in the performance,” says Eaton, who has received a MacArthur “genius” grant, two Guggenheim fellowships, and three Prix de Rome grants for his work in new music composition and performance. “Sometimes new music concerts can be very cold and lifeless. We want very much to democratize opera. We want to reach audiences throughout the city--in schools, retirement homes, cultural centers, and underprivileged neighborhoods.”

The Pocket Opera was first formed by Eaton in 1992, but closed after only a few performances. Originally sponsored by the University of Chicago and Performing Arts Chicago, the company was recently incorporated as an independent not-for-profit organization and now looks to outside funding and individual donors for support. Eaton aims to perform two operas each year--one of his own and one commissioned by an outside composer.

Gulliver takes a whimsical look at the lesser-known third and fourth books of Jonathan Swift’s epic. The piece features a libretto written by Eaton’s daughter, Estela Eaton. Antigone is set to a libretto by Eaton’s longtime collaborator, Nicholas Rudall, a U of C associate professor in classical languages & literatures and former director of the Court Theatre. Rudall and University Theater director Curt Columbus staged the two works, featuring sets designed by world-renowned sculptor Dimitri Hadzi. Cliff Colnot, resident conductor of the University’s Contemporary Chamber Players, conducted both operas. While instrumentalists dominate the action in Gulliver, the singers take the spotlight in Antigone, which features vocalism in the grand operatic tradition.

Both pieces, especially Gulliver, rely on microtonal nuances to convey surrealism. Microtones are created through the use of sounds not found on the white and black keys of a piano. Eaton coached his singers in the off-pitch notes by working with them on two pianos that were tuned a quarter of a tone apart. Incorporating surrealism frees the composer to take more chances, Eaton says, with other elements of the opera, such as singing instrumentalists.

“When the setting has surreal elements, the audience is more apt to accept people singing who don’t sound like Caruso,” he says. “That is particularly true with the works that are primarily written for instrumentalists. It really does seem to work because the audience gets involved in the story and doesn’t care that, say, the flutist doesn’t sound like opera star Joan Sutherland, or that the instrumentalists are not professionally trained actors.”

Eaton expects to rely heavily again on his band of merry instrumentalists in the Pocket Opera’s next commissioned work: a science fiction–like libretto based on the development of DNA and the unscrambling of the genetic code.--Molly Tschida

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CITATIONS

Block by block
A U of C study of 288 children ages four through seven found that by age four and a half, boys are better than girls at putting together complex shapes. Reported in the July 1999 issue of Developmental Psychology, the study, led by psychology professor Susan Levine, offers the first unambiguous evidence that such differences, once thought to develop during adolescence, begin much earlier. The origin of the differences, says Levine, remains unclear: “They could be related to the way children are reared, caused by biological factors, or both.” Enriched learning environments, she says, will help girls develop high levels of spatial skills, needed more and more in a technology-driven society.

Color-coded
Ecology & evolution professor Wen-Hsiung Li and research associate Ying Tan reported in the November 4 Science that full-color vision originated in a primate suborder about 55 million years ago--not in higher primates 15 to 20 million years later, as had been thought. Analyzing genes from tissue samples from 20 different kinds of prosimians, mostly lemurs, Li and Tan discovered a polymorphism--a gene variation that codes for protein pigments in the retina that produce full-color vision in primates--in two diurnal species and one nocturnal species. Because color vision is useful only in daylight, Li was not surprised to find the polymorphism in the diurnal prosimians. The polymorphism in the one nocturnal species adds weight to the theory that nocturnal species originally evolved from diurnal prosimians.

A new family portrait
The American family no longer looks the way it did three decades ago, according to a new report from the National Opinion Research Center. The report says the number of children living with their original two parents has decreased from 73 percent to 51.7 percent since 1972. That year, in only 33 percent of families did both parents hold a job, while in 1998, the number had risen to 67 percent. Unmarried people with no children now constitute the most common living arrangement in the country.

New window into crime
There might be less of a connection between a neighborhood’s appearance and its crime rate--the “broken windows” theory--than previously thought, says a major study of Chicago neighborhoods by sociology professor Robert Sampson. The study, published in the November issue of the American Journal of Sociology, argues that concentrated poverty and low “collective efficacy,” or the capacity of neighbors to work together to strengthen their community, play a greater role in predatory crime than the neighborhood’s appearance.

More women Ph.D.'s means more Ph.D.'s
An increase in the number of women seeking graduate education has caused U.S. universities to award a record number of Ph.D. degrees, says a federal agency report prepared by National Opinion Research Center senior research scientist Allen R. Sanderson, AM’70. The number of women receiving Ph.D.’s rose 20 percent from 1992 to 1997 and has increased seven-fold since 1967.

A dinosaur among dinosaurs
Organismal biology & anatomy professor Paul Sereno and his team have discovered another dinosaur species in the African Sahara: Jobaria tiguidensis. Described in the November 12 Science, the species, with 95 percent of its skeleton preserved, is the most complete long-necked dinosaur discovered from the Cretaceous Period. Named for “Jobar,” a creature in local legends, and a cliff near the excavation sites in the Republic of Niger, Jobaria tiguidensis doesn’t fit the typical sauropod image. With its spoon-shaped teeth, relatively short neck, and simple backbone and tail, the species is proof of the uneven pace of skeletal change--a dinosaur that changed very little over millions of years.--M.R.Y and Q.J.