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APPENDIX D

THE ROLE OF COPYRIGHT PROTECTION AND
OPTIMAL PRICING IN COMPUTERIZED STI SYSTEMS

by

YALE M. BRAUNSTEIN*

NEW YORK UNIVERSITY

*The views presented in this paper are solely those of the author and do not necessarily represent those of New York University.

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This paper will apply the optimal pricing considerations de veloped in previous papers (Braunstein and Ordover [1976] and Ordover and Willig [1976]) to hypothetical computerized STI systems. We shall examine the economic basis for the imposition of a system of prices that takes into consideration the relevant factors of supply (costs) and demand. For those price systems to be employed, it is necessary that unauthorized access to the output of such a system (to the information) be controlled. The method of exclusion of nonpayers will, in part, rely on copyright protection. The effects of optimal pricing and copyright protection on the economic welfare of society (measured by changes in producers' and consumers' surplus ) will also be discussed.

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In the words of Baumol and Marcus [1973], "libraries and computers may be considered two opposite polar cases among information channels from the point of view of past and prospective cost behavior." The trends in library and computer costs that they showed for the 1951-1969 period (reproduced here in Figures D.1 and D.2) have continued.

Currently certain library functions have been automated and now operate in a resource-sharing mode for groups of libraries. A prime example of this is the Ohio College Library Center which reduces unit costs by the sharing of the labor-intensive cataloging function. (See Kilgour [1972] and Hewitt [1976].) Similarly many libraries have switched to bar code label identifiers for both their collection and their users. The bar code reader is connected to a computer which processes and stores the relevant information. This system replaces the previous check-out, recall, return, and inventory systems and reduces both labor needs and costs.

Another trend in libraries has been the increasing use of a variety of micro forms. The now standard-bound volume, be it a monograph or a journal, requires an inordinate amount of storage space. Even if the average "hard-copy" volume requires only 0.02 cubic feet of shelf space, a library with 200,000 volumes (not an unusual amount for a small college library) requires 4,000 cubic feet for their current collection. (This calculation ignores the shelves, aisles, space for readers, etc.) To this must be added new volumes which easily can result in a growth rate of the collection on the order of 4% per year (Baumol and Marcus, p. 8).

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In contrast to the current library practice of purchasing, storing, and loaning "hard-copy" printed books and journals, we can envisage two alternate systems. The first of these would consist of published

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