School professor asks provocative questions about when and how
legal rules should constrain market activity.
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.
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.
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.
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.
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.
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?”
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.
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.
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.
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.
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.”
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.
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.
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.”
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.