Professor Stan Liebowitz

Office: SM 3.801

Hours: R. 3-5 or by appointment

Telephone: 972-883-2807



Economics of  Information Goods

This is a course about the economics of information goods, those goods at the center of the modern economy. Hopefully, you will learn how information goods differ from regular goods, the nature of property rights in these markets, how these goods should be priced, problems with copying these goods, and how markets with information goods evolve. We also will apply these and other basic economic concepts to an understanding of how the Internet economy is developing, why the dotcoms went belly up, and some public policy issues.




There is no single textbook that covers the material for this course. First, I have a book called Rethinking the Network Economy published by Amacom in September of 2002. This is as close as we can get to a definitive textbook. A second useful book is Information Rules by Shapiro and Varian. It is simple enough to read very quickly but doesn't provide the level I detail I would like to you get. Plus, I will disagree with the authors from time to time. Third, some of you may find my book with Stephen Margolis titled: Winners, Losers & Microsoft to be useful. All these books are much less expensive than the typical textbook so it should be easy to stay within you budget. I hope you still have your MECO 6201 (6303) textbook (for example, Landsburg's Price Theory and Applications), since it will have useful background material. There are also additional readings that will are accessible through the web. The easiest way to get the readings is to go to my web page and follow the instructions to this reading list which will allow you to click on the links.

There is also an online course that covers much of the same material. That course includes a CD with PowerPoint slides and audio files for the slides. The CD is available in the bookstore and you might wish to purchase it, particularly if you are likely to miss some classes or want to go through the material at a slower pace. The material on the CD is not identical, however, and you should keep track of what is going on in class. It is possible to get slightly dated copies of my power point slides and even my lectures since this course is an offline version of the online MECO 6311 course. All of these files can be purchased on a CD in the bookstore. Most students find the CD the most convenient solution. You can get just the PowerPoint slides from my website: mod1, mod2, mod3, mod4, mod5.



Grading is 40% for the midterm, 60% for the final.

To give you an idea of what my tests are like, I include a sample test that can be found here.


Course Readings



Module 1 Price Discrimination, Versioning, Tie-Ins Sales and Bundling

*Shapiro and Varian, Chapter 3.

*Material in your old micro text (such as Landsburg) that talks about elasticity, monopoly, and price discrimination

*Amy Cortese “The Power of Optimal Pricing” Business 2.0, September 2002 click here

*Stigler, G. "A note on block booking", The Supreme Court Review, 1963. click here

Liebowitz, S. "Tie-In Sales and Price Discrimination," Economic Inquiry, July, 1983. Also: click here

Schmalensee, R. "Commodity Bundling by Single-Product Monopolies, Journal of Law and Economics, April 1982. click here


Module 2 Public Goods and Intellectual Property

Landsburg: Chapter 14.2, Public Goods

*Liebowitz S. “Intellectual Property” forthcoming in the Concise Encyclopedia of Economics click here

*Julie E. Cohen “Copyright and the Perfect Curve” 53 Vand. L. Rev. 1799 click here

* Stan Liebowitz and Steve Margolis “17 Famous Economists Weigh in on Copyright: The Role of Theory, Empirics, and Network Effects.” Working Paper click here

Demsetz H. "The Private Production of Public Goods", Journal of Law and Economics, October 1970. Or click here

Liebowitz, S. "Some Puzzling Behavior by the Owners of Intellectual Products," Contemporary Policy Issues, July, 1987, pp. 44-53. Or click here

Play God – determine the ideal copyright length


A.                The Economics of Copying

*Rethinking the Network Economy: Chapter 7

*Hal R. Varian “Copying and Copyright” Forthcoming in Journal of Economic Perspectives, draft June 4, 2004 click here

*Liebowitz, S. J., "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, October 1985, 945-957. Also: click here

Benjamin D. and Kormendi, R. "On the Interrelationship between Markets for New and Used Durable Goods," Journal of Law and Economics, Oct. 1974, pp. 381-402. click here

Liebowitz, S. J., "Durability, Market Structure and New Used Goods Models," American Economic Review, September, 1982, pp. 816-824. Also: click here

 Shapiro and Varian, Chapter 4


B.                The Impact of File-sharing: Napster and its offspring.

*Stan Liebowitz “Will MP3s downloads Annihilate the Record Industry? The Evidence so Far” Advances in the Study of Entrepreneurship, Innovation, and Economic Growth, V. 15, 2004, pp. 229-260.” Click here

*Felix Oberholzer and Koleman Strumpf  “The Effect of File Sharing on Record Sales: An Empirical Analysis” working paper, 2004 click here

*Stan Liebowitz “Pitfalls in the Analysis of file-sharing” click here

“Appeals Court Blocks RIAA Efforts to Identify Music Downloaders” WSJ click here

 “How record companies could embrace Napster and maintain profits” From Linux World, March 20, 2000, Nick Petreley click here

Brian Ploskina “Numbers Rock 'N' Roll in Napster Dispute”, Inter@ctive Week, June 19, 2000 click here

Lee Gomes “Judge Orders Napster to Stop Downloads of Copyrighted Music” Wall Street Journal, July 27, 2000 and “Napster Appeal Is on Legal Fast Track After a Stay That Delayed Closing Site” July 31, 2000. Click here

Story about RIAA beginning to prosecute students click here

"Nipping It In The Bud: Monsanto isn't just talking tough on seed piracy; it's taking action." Story about Monsanto's genetically engineered seeds and how it keeps farmer from making 'copies'. click here

Alejandro Zentner “Measuring the Effect of Online Music Piracy on Music Sales”  working paper 2004 click here

C.                Alternatives to Copyright

*Chapter 6 in William Fisher’s forthcoming book on Intellectual Property:

*”Alternative Copy Systems: The Problems with a Compulsory License”, Stanley J. Liebowitz, (Vol. 1, No. 2, May 6, 2004

 “Impose a Noncommercial Use Levy to Allow Free P2P File-Swapping and Remixing”, Neil Weinstock Netanel, click here


Module 3

A.                Network Effects, Standards, and Lock-In.

*Rethinking the Network: Chapters 1, 2, 3

*W. Brian Arthur, Positive Feedbacks in the Economy, Scientific American, Feb. 1990 also at: along with other Arthur papers.

Shapiro and Varian, Chapters 5, 6, 7, 8, 9.

Katz, M. L., and Shapiro, C., "Systems Competition and Network Effects," Journal of Economic Perspectives (Spring 1994). click here

Leibenstein, Harvey, “Bandwagon, Snob, and Veblen Effects in the Theory of Consumers’ Demand” Quarterly Journal of Economics May 1950. Available in the electronic journal section of McDermott Library

Brynjolfsson, Erik and Kemerer Chris F., “Network Externalities in Microcomputer Software: An Econometric Analysis of the Spreadsheet Market,” Management Science, December 1996. Click here

David, Paul A.  “Path dependence and the quest for historical economics: one more chorus of the ballad of QWERTY”.  Click here

B.                Cases: QWERTY, Betamax, and so forth

*David, Paul. A. 1985. "Clio and the Economics of QWERTY", 75 American Economic Review, 332-7 (May). Click here

*Liebowitz, S. J. and Margolis, S. E. "The Fable of the Keys," JLE, April 1990, pp. 1-26. Click Here. WLM chapter 2.

“Product Quality and the Economic Performance of Firms,” Stan Liebowitz, report for McKinsey and Company, October 15, 1999. Available at: .

Liebowitz and Margolis, WLM Chapter  6, 7, 8.

 “Economists Decide to Challenge Facts of the QWERTY Story” Lee Gomes, Wall Street Journal, February 25, 1998 Click here or “The QWERTY Myth”, The Economist, April 3, 1999. Click here

Shapiro and Varian, Chapter 9, 10


Module 4

A.                Internet Business Model and the Meltdown

*Rethinking the Network: Chapter 4, 5

*“So Long , Supply and Demand: There's a new economy out there -- and it looks nothing like the old one”, by Thomas Petzinger Jr., 01/03/2000, The Wall Street Journal, Page S1. Click here

* “Will the Net Turn Car Dealers into Dinosaurs? State Limits on Auto Sales Online” Solveig Singleton at

Wired News “Webvan's $1 Billion Soup Job”, Joanna Glasner, July 9, 1999, Available at:,1367,20646,00.html .

Telser, L. G., "Why Should Manufacturers Want Fair Trade?" Journal of Law and Economics, October 1960

*“How the Internet Bubble Broke Records, Rules, Bank Accounts” Greg Ip, Susan Pulliam, Scott Thurm, and Ruth Simon, Wall Street Journal, July 14, 2000 Click here

B.                Advertising on the Net

*Rethinking the Network: Chapter 6

“Are Click-Through Rates Really Declining?” Jim Meskauskas,, January 16, 2001, at:

*"Prices for ad banners fall" Andrea Petersen, WSJ Interactive Edition, February 24, 1999 click here

*Millward Brown Interactive 1997 Online Advertising Effectiveness Study:

 “The Great Net Giveaway Gimmick” Jennifer Mack, ZDNet News, October 24, 1999 2:21 PM PT, click here

US Online Ad Spending: The Roller Coaster Continues, David Hallerman, Emarketer,  13 November 2002, US Online Ad Spending

“Pop-Under Web Ads May Backfire, Says Jupiter” Reuters, Jul 26, 2001 at:,1902,28294,00.html


Module 5  Antitrust


Landsburg: pp. 398-400

*Liebowitz and Margolis, WLM Antitrust Appendix; Epilogue in paperback.

*The Wall Street Journal “Time Warner, AOL Are Criticized by European Antitrust Enforcers” John R. Wilke August 31, 2000 click here

*The Wall Street Journal “AOL Competitors Lobby FCC Over 'Advanced' Messaging” Julia Angwin December 29, 2000. click here

Antitrust Abuse in the New Economy: The Microsoft Case by Richard L. Gordon, Edward Elgar (October 2002)

McGee, John. "Predatory Price Cutting: The Standard Oil Case", Journal of Law and Economics, October 1958

Stanley Sporkin, United States v. Microsoft Corp., 159 F.R.D. 318, 333-38 (D.D.C. 1995) (Sporkin, J.), rev'd, 56 F.3d 1448 (D.C. Cir. 1995). Available at: .



You might be interested in a program the BBC did on the QWERTY debate: Click here

My Interview with ABC news about the impacts of MP3 downloading and copying on the industry

Or, an interview I had with Salon Magazine on MP3 copying: Salon interview: 

 For class notes (somewhat out of date) go to:

See the Interview with Brian Arthur in Pretext magazine: