Impacts of DRM on Internet Based Innovation

Abstract

Neoclassic theory assumes that individuals solely strive for maximization of their utility function reflecting their respective preferences. Thus, decision makers will only consider costs and bene.ts which have an impact on their individual utility function. Therefore, if an individual’s action affects the utility of another party without impact on one’s own well-being, this impact will not be taken into account. Effects like this (i.e. positive and negative external effects or externalities) can not only prevent an economic agent from investing in such a good, but can also lead to over investment. For example, in case of positive externalities, the profit seeking agent does not receive compensation for the benefits she bestows on other parties; therefore, she will not invest sufficiently into these activities. This may result in inefficient markets for this kind of goods.