Profiting from innovations in digital information goods: the role of intellectual property rights

Summary form only given. Advances in digital technology have substantially reduced the costs of reproducing and distributing products such as computer programs and games, documents, and works of music. This paper asks: How do firms appropriate the rents from their investments in R&D in digital information goods? Digital information goods differ from other types of goods in that they can be cheaply and easily reproduced, altered, and distributed, with copies of the same quality as the original. With the advent of the Internet, there are no longer any significant technical, economic, geographical or temporal limits to the amount of information distribution-or imitation-that can occur. Yet while abuses of intellectual property rights are difficult to trace, and infringement suits are expensive and uncertain to prosecute, innovation in these goods has continued unabated. To a certain extent, developments in digital technology fundamentally challenge commonly accepted precepts of how firms profit from investments in R&D. Yet software firms have made extensive use of traditional intellectual property rights like patents, copyrights, and trademarks.. They have also adopted other approaches to appropriability,