Demand Effects

Increases in the protection of intellectual property will tend to reduce demand for the information products protected. This is because there are always two property rights involved: the rights of the owner of the intellectual property (information product) and the rights of the owner of the medium. This is illustrated by the rights of first purchase and fair use in copyright law.

1. The first (retail) purchaser of a copyrighted book has a right to resell or lend the book, although such reselling competes with new retail sales of the book. This limits bookseller profits, and is particularly a concern for publishers of textbooks. In some European countries, the right to lend a book is limited, so that libraries have to pay fees to publishers to compensate the publishers for the lending of the book.
2. The owner of the book has the right to use it in certain ways -- for example, to make photocopies within limits for her own use -- that some publishers would like to charge for, if they could. These rights that remain with the owner of the book are called rights of "fair use."

But if the owners of books were deprived of the right to resell, lend, and use their books in particular ways, their own property rights have been limited, and the utility of the book to them is reduced. Thus the demand for the books will be reduced. In a few cases, this could make increases in intellectual property protection unprofitable for the owners of the intellectual property. More generally, it will increase the monopoly waste in information product markets.

Transaction Costs