Document Type

Article

Publication Date

1-1-2015

Abstract

This Article argues that the evolution of software—and the looming age of the “Internet of Things”—will allow manufacturers to make use of consumer monitoring technologies and restrictive software licenses to price discriminate more perfectly. First, the increasing communication between software and its producers gives more opportunities to monitor consumer behavior and characteristics. Second, attaching restrictive copyright licenses to software—and to goods containing software—enables producers to restrict use and resale of their products. By combining monitoring and restrictive licensing, producers will have increasingly better ability and opportunities to price discriminate among their consumers.

This Article explains that increased monitoring and price discrimination will not always happen because, in some cases, it will be against the manufacturers’ financial interests. But in other cases, manufacturers will indeed restrict use of products to facilitate price discrimination. The Article argues that the low marginal cost of distribution of software makes it more likely that price discrimination of software-enabled goods will be welfare enhancing and will result in cross-subsidization from rich to poor so that poor consumers can get more products for lower prices. The Article also demonstrates that the traditional policy reasons to disallow restraints on personal property do not apply to software-enabled devices. We conclude that rather than discouraging the use of restrictive software licenses, the law should adapt to better facilitate such licenses and the more perfect price discrimination that goes with them.

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