Recap Of Edinburgh Talks: Lots Of Interest In New Business Models

from the a-step-forward dept

As mentioned earlier this month, I was in Edinburgh, Scotland last week, after being invited over to give a series of talks at the University of Edinburgh. It was a fantastic trip, full of interesting discussions. I gave three different talks, with the second one, being the one with the most interesting reaction. It was for a graduate-level class on "digital marketplaces" and was the first time I've done a detailed talk about the economic theories we discuss around here.

I was interested to see how people would react to some of the ideas, and it certainly generated a lively discussion that lived on well-past the class itself. In fact, some of that talk got dragged into the other sessions as well and even a student-run tour the next day of the Edinburgh castle (imagine discussing new business models while touring an ancient castle... surreal). However, the most interesting thing was that, for the most part, people didn't seem to think the idea that you could make money by leveraging infinite goods to sell scarce goods was a strange idea. Almost everyone seemed to grasp that intuitively -- and the majority of the discussions then focused on how such concepts could be constructively applied to a variety of different fields and offerings (with some asides to question why certain old industries have so much difficulty adapting to the changing market).

This was immensely encouraging. While I assume there were some people who disagreed with what I said and just decided to remain quiet, the fact that so many people seemed eager to take these ideas and make use of them in the real world suggests that the next generation of entrepreneurs and engineers aren't going to be tied down by legacy ideas of trying to limit artificial scarcity. They're going to go out into the world and build the new businesses with the new business models that finally force the old regime to change (or simply go away). It was an extremely encouraging experience. I was somewhat concerned that most of the discussion would be about defending and expanding on the concept, but instead it turned into a much more constructive conversation about how to apply it in the real world. Hopefully, that's a sign of good things to come.

As for the other talks, the first one, given to a graduate-level entrepreneurship class, was on market research and how to actually make it useful. The last talk was on the history of Techdirt and how we (hopefully!) have been able to build a sustainable company. That one was to the local Edinburgh Entrepreneurship Club and involved a talk I've done a few times now. One attendee wrote up his notes on it. During the trip I was also able to meet a few local entrepreneurs, including the folks behind PeopleMaps, Hubdub and Scoopt, among others. We held a Techdirt Greenhouse idea workshop, which was quite a bit of fun, as well. It's always interesting to see startup communities outside of Silicon Valley. The experience was somewhat similar to when I went to the Mesh Conference in Toronto last year. While the entrepreneurs there may not have quite the same resources as they would in Silicon Valley, they seem to make up for it with additional enthusiasm and determination. Overall, it was a great trip full of interesting people and interesting discussions. Thanks to Mike Clouser for making it happen.


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    Anonymous Coward, Jan 31st, 2008 @ 12:23pm

    Wow nice way to pat yourself on the back.

     

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      4-80-sicks, Jan 31st, 2008 @ 1:28pm

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      Wow nice way to pat yourself on the back.

      Way to continue to say something is wrong contrary to ever-increasing evidence

       

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        Corey, Jan 31st, 2008 @ 1:35pm

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        Read the last few posts on the Pirate Bay story (http://www.techdirt.com/articles/20080128/19330699.shtml)
        for problems with this business model.

        I'm not saying its not good for some industries, it certainly is, but it does not work for all "infinite" products, because of the products finite market. I won't get into more here - its all been discussed on the above thread.

         

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          Anonymous Coward, Jan 31st, 2008 @ 2:04pm

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          That's an interesting hypothesis but the business model Mike proposes seem to work well for books, softwares, and various industry. You would have to suggest counterexample to dispute all the example we put forward against your argument.

          Now, the theoretical market limit seem to be plausible(In fact, I think it is probably everywhere), but I think what this business model Mike propose does is to help people reach this true market limit.

           

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            Corey, Jan 31st, 2008 @ 3:34pm

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            Now I don't want to recap everything in the other thread, since you can read it there, but the reason it won't work for most book is there isn't something else you can sell to tie to the book (don't you think publishers and authors already try this, since most books don't make a ton of money?)

            I gave an example in the other thread of someone who writes a book on Jesse James. If its a good book it'll get reviewed in True West, Wild West, and come up on Jesse James and Western history websites. That's its market. Its not going to sell to many people outside of that market. So giving it away for free (or letting someone else print it) only cuts into its limited market. Also, there really are not to many other avenues an author of such a book would have for making money. Speeches pay little or nothing and most of the reader wouldn't pay to meet the author. If you think I'm wrong then you really have no idea what historians make.

            It really is ignorant to think one business model will work for everything.

             

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              Corey, Jan 31st, 2008 @ 3:40pm

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              And I wasn't trying to be insulting with the "ignorant" comment - my point just is that nobody knows everything about every type of market. There are exceptions to any rule, especially one so broad that is supposed to cover anything that can be given away free. Before people call to abolish copyright, they need to look at how it affect everybody.

               

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              Anonymous Coward, Jan 31st, 2008 @ 3:44pm

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              You ignored examples where authors give away digital copies that would eventually result in increased sale.

              This to me suggest that people love to own books rather than be content with just a digital copy. This prove true for me as well. Despite being young and as well a technophile, I still prefer dead tree version of the digital version.

              You need real-life examples to back up your assertions. Otherwise your assertions have no weight.

               

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                Corey, Jan 31st, 2008 @ 6:01pm

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                I'm not ignoring that at all. I'm telling you it won't work for all books. Some can reach bigger markets that way, and some can't. You guys are trying to take a few examples and act like it worked for a specific book it will work for everyone, and that's just not true.

                 

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                  Anonymous Coward, Feb 1st, 2008 @ 3:00am

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                  You keep asserting that it won't work. However, you NEED A REAL-LIFE COUNTEREXAMPLE to back up your assertion.

                  It is a rather simple thing to do. Why can't you do it?

                   

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                    Corey, Feb 1st, 2008 @ 7:17am

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                    I given examples. Smaller books like history books. The market is FINITE. Don't you think all of these authors and publishers have tried to find other ways to make money off of them. I'm sure there are other industries, maybe someone who creates an obscure software that only a few need, where the very limited market makes Mike's model unworkable.

                    And to Mike, you haven't proven it will work in all industries. A few examples for an industry does not prove it will work if an entire industry releases their content for free and floods that market.

                    And to 4-80-sicks, who said "Let them, and concentrate on making your money in other ways." My point is that some products appeal to a limited market and there are not always other ways to make money from a product (see my Jesse James book example). If copyright laws were completely ignored we'd lose many of these products because they would all lose money.

                     

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                      Anonymous Coward, Feb 1st, 2008 @ 11:46am

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                      Did the authors employ the strategies that Mike and others propose?

                      If not, than your counterexample is very weak.

                       

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                        Corey, Feb 1st, 2008 @ 4:58pm

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                        The example isn't weak because more authors of such books give away other things for free. They write article for magazines, web pages, etc, and give speeches and do book signings for free. Honestly, considering how much shorter article are, and how much quicker people can read them - if you are not finding out about and reading any of these articles, why do you think the free book would spread to more people?

                         

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                          4-80-sicks, Feb 1st, 2008 @ 7:23pm

                          Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Corey

                          The example isn't weak because more authors of such books give away other things for free. They write article for magazines, web pages, etc, and give speeches and do book signings for free. Honestly, considering how much shorter article are, and how much quicker people can read them - if you are not finding out about and reading any of these articles, why do you think the free book would spread to more people?

                          You've taken one part of what is written (give your customers a lagniappe) then turned the other part (scarce vs. abundant) completely around, and tried to put them together. Content can be reproduced with little to no effort or resources on the creator's part. So that's not what you worry about.

                          I do see how you got there, if I take your argument as a whole, without breaking it up into separate parts. This is something that you act like you're not capable of doing, though.

                          You are correct that articles and speeches are a good way of promotion. Take this website--it's based on a book, I was reading it earlier today, and there's a lot of content of the book there, for free. Now I want to own the book. When the whole book is online for free, what do you do? Well, in the case of your specific example of the Jesse James book, there's a few things to consider. First of all, that doesn't sound like a book that's going to be pirated widely, sorry. But you should realize your market. People who want to buy such a book are not going to look for it online, no matter how much you wring your hands about the possibility. They are going to look for it through actually "legitimate" avenues. Set yourself up as an Amazon store, which doesn't require that Amazon itself agree to stock your book. They will just collect the money, pass most of it to you, and you ship the book out. Sell it on eBay. Set up your website, get it highly ranked on Google, and offer signed copies at a premium, unsigned copies at a discount off the MSRP. Also accept paypal donations. Real world (non-internet related) examples that I have seen in practice: Visit independent bookstores and pitch it. Some of them will sell it for you. Give your local library a copy, and also find a staff member who likes it and is willing to offer it for sale at the desk. Get a table at a western film festival, or convince an indie theater who's running a western marathon to let you "in." You've also forgotten that a lot of people attending those "free" speeches will buy the book at the end of the night, and signings necessitate sales! What are you going to do, sign somebody's computer or copy they printed out on their laser printer?? It all takes work, but less work than it did in the old world, where you had to find a good agent, who could convince a major publisher that your book is worthwhile. I feel sorry for you. Stop asking the hypotheticals. Stop looking at the small picture. It's easier than ever for an independent creator to sell his wares. What are you worried about?

                          If you want more creative advice, take Techdirt up on their offer and hire a consultant. The articles and commentary are free, the personalized advice is not. Ha! I gotta say though, if you continue to be such a worrywart and counter every idea with "what if what if" and "OMG pirates are stealing my book" you'll never get anywhere, with or without TD's services.

                           

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                            Corey, Feb 2nd, 2008 @ 12:55pm

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                            Well 4-80-sicks, that was a long off topic post that I think proved my point, not yours. Fisrt of all, I don't really need all of your advice on how to promote books, and secondly, I do have a publisher.

                            My point was, and I think your examples prove this - that in the example I gave the book IS the product. There are not many other products/services to attach to it. Even your examples didn't involve giving the book away for free, they involved ways to promote the book as the product. Even the website you gave as an example proves my point - its gives enough from the book to pull in people who want to buy it - but if it gave the ENTIRE book away for free, some of those people would just take the free ebook and not buy the book, only cutting into their market.

                             

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                              4-80-sicks, Feb 3rd, 2008 @ 12:52pm

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                              Corey: So you know what you're doing. Good. Why are you here complaining that your market is finite? Why are you nitpicking every little answer?
                              I'm not telling you to give the book away for free! I'm telling you it hurts you less than you think if other people give away an electronic file containing the content of the book (which is not the same thing! Paper, ink, dust jacket?)
                              The website I mentioned--yes, some people would take a free ebook. So what? Five people do that, and ten or twenty or three who didn't hear about the book otherwise purchase it.

                              Please don't throw stones. This was off the topic of the article from your first post. I was, anyway, talking about ways to increase sales, because I thought that was your concern. Apparently it's not--you are only concerned about not losing sales. Sounds like maybe you're already doing everything possible to increase sales, do I have that right? (By the way, is your book in any museum gift shops? I can guarantee you that nobody is going to see it there and go home and download it on Kazaa instead.)

                              You want on topic...ok. Given your responses here so far, you are focused solely on the issue of an electronic copy of your book getting out to evil evil pirates, because that will reduce your sales. So I will respond further only to that:

                              It could just as easily increase your sales. It can act as promotion just like all that other stuff I mentioned. Whether you make it available yourself, or others do it against your wishes, or others do it with your blessing, the outcome is the same: More people will read what you wrote than would have otherwise. Out of the people who download the unauthorized ebook, few if any would have purchased anything anyway, while some might become interested enough to buy something. A negative effect for you is rather unlikely.

                               

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                                Corey, Feb 3rd, 2008 @ 3:24pm

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                                "A negative effect for you is rather unlikely." - that's where I disagree with you. I used the Jesse James book example because I am a history author and its an area I know something about. If you're a person who reads books about Jesse James, Billy the Kid, Wyatt Earp, or others, there would be books I could mention that you would know. The major potential market already knows about the book, and a % of those would be the ones who would download it instead of pay for it (if you haven't heard of these typs of books from all the various sites they are listed and mentioned on, book reviews, etc, what are the odds you'd find the free ebook and learn about it that way?). This would only cut into the market, not expand it.

                                Again, I used this example because its an industry that I am in, but the point was that this affects ANY industry with a finite market. I'll give you another example. If you are a musician you know about protools, know people who have it, and have probably used it yourself. If this software was given away for free, it would not expand the market, because those who would be likely to purchase it already know about it. Giving it away for free would only cut into the market.

                                Mike's model works well for things that have not reached their potential market, but not for things that have.

                                 

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                                  4-80-sicks, Feb 3rd, 2008 @ 8:00pm

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                                  Mike's model works well for things that have not reached their potential market, but not for things that have.

                                  Clearly, everyone who knows about major figures in 19th century western U.S. history is already aware of every book on the subject that is published. Let me ask, what percentage of them do you think are going to download it instead of paying for it, when they might have otherwise considered paying for it? Bonus question: What are you going to do in the future if everything is legitimately distributed over the internet? (Alternatively, considering that that may take quite a few decades, will no one be left alive who cares about the subject, as the market is finite and cannot grow?)

                                   

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                                    Corey, Feb 4th, 2008 @ 7:53am

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                                    The book example was more an example of a finite market and how the free product can hurt it more then help it. It applies to products other then just western history books (see my ProTools example).

                                    To answer your question about the future, I'm glad those in the government respect copyright more then those on this board. Everything being legitimately distributed over the internet, and distributed over the internet without the copyright owner's consent are two different things. If copyright is enforced, there is no problem with products being LEGITIMATELY distributed over the internet.

                                     

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                                      4-80-sicks, Feb 4th, 2008 @ 10:21am

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                                      Everything being legitimately distributed over the internet, and distributed over the internet without the copyright owner's consent are two different things.

                                      That's exactly what I was saying. If everything is legitimately distributed over the internet, then the Jesse James book has to be, as well, which then opens the door (because the digital version exists in that scenario) to distribution without the publisher's consent. As for ProTools, I am sure it can be found through less than scrupulous means, yet it survives, somehow...

                                      By the way, I do respect copyright personally, but since it is becoming harder to enforce and will likely continue along that line, it may be wise to consider ways to get along without it. Not to say "stop copyrighting works," but that it doesn't deserve a lot of thought and money consumed on worrying about it.

                                      I know that's hard, but I consider it reality. You clearly do not, so go ahead and continue on your path. I know you're saying "it won't work for this market" but as I pointed out above, a person reading the text without paying for it does have potential to increase the market, and it is unlikely that a former paying customer would stop paying, unless you annoy him with DRM in the paid version of the electronic book.

                                       

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                                        Corey, Feb 4th, 2008 @ 11:36am

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                                        Yes, ProTools does survive. My point was more that file sharing in cases like theirs is costing them money, not benefiting them.

                                        The other area where we disagree is that I think piracy can be controlled. It will never be completely stopped, but as laws in various countries catch up to technology I believe there will come the day where sites like Pirate Bay, which serve no other purpose then for people to download copyrighted works, will no longer exist. It looks ridiculous now, because of course when they get sued in one county, they move to another where what they are doing is legal. But as companies like this keep moving around the globe, they go to countries that rely on various degrees for American and European financial aid. The pressure from countries like the US will affect (albit slowly) law in other countries, and some countries will get there without any pressure at all. It just takes time with a new technology like the internet to straddle the line between allowing technological advances and protecting things like copyright, but we will get there.

                                        And while piracy will continue on an individual level (a friend giving a CD to a friend who copies it) that has so much less effect then when a person gives the entire world access to copy their CD.

                                         

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                      4-80-sicks, Feb 1st, 2008 @ 1:41pm

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                      Jesse James book: Books are rather unique. Holding a physical book gives a different experience from reading it on a screen. You can feel the pages, you can see slight variations in the ink, et cetera. The most obvious way to provide value over an electronic version is to make a really nice physical object. Listening to music is the same experience whether it's MP3 files or a CD, but listening to MP3s does not provide beautiful artwork, a really nice case, or any of these things. It also doesn't contain the delightful crackle of a record needle, or the artifact of flipping a record over, and so forth.

                      Given all the complaints of the recording industry, people don't seem to care about those physical aspects much, when it comes to music. I think readers do. As you say, it is a smaller market. Any time I hear about a new e-reader, many people come out of the woodwork to say "It's not the same!" I expect that serious readers, such as those interested in history books, feel the same. If it's some kid doing a report who's never going to read the book again, he may not want to purchase it. He'd rather copy his citations and quotes with a mouse. But maybe his teacher will buy the book, if the kid provides compelling quotes. He may recommend it to colleagues; he may even integrate it into his curriculum. These are ways in which the market can indeed grow.

                      If copyright laws were completely ignored

                      Why is everything so black and white? OK, let's look at a similar example: Nintendo ROMs. There's about a million websites out there which contain translated games from Nintendo's old video game systems. Nintendo has never approved, and they have acted to protect their copyright, when their flagship characters are involved, by contacting the webmasters and requesting those titles be removed (not all comply, it looks like). Yet, these sites persist; yet, Nintendo does a brisk business selling their old games, over the internet, via their Virtual Console store.

                       

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              Mike (profile), Jan 31st, 2008 @ 4:22pm

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              Now I don't want to recap everything in the other thread, since you can read it there, but the reason it won't work for most book is there isn't something else you can sell to tie to the book (don't you think publishers and authors already try this, since most books don't make a ton of money?)

              You can believe that if you want, but there are actually plenty of things you can tie it to, and we're starting to see authors (and a few publishers) figure that out. Just because you are unable to come up with those things doesn't mean they don't exist.

              It really is ignorant to think one business model will work for everything.

              I have never said that one business model will work for everything. I'm simply explaining the economics that will force certain business models to stop working, while highlighting others that will work. It's about the economics will allow many different business models. What won't happen is a seeing a business model succeed that goes against the economics. Not in the long term, at least.

               

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                Corey, Jan 31st, 2008 @ 6:15pm

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                Mike, you really don't seem to understand what most authors make. Authors have always been trying to find ways to make more money just to support themselves. In the example I gave above about a Jesse James book - how in the hell does a western history author give his product away for free and make up for it in another way. There's just not a big enough market, not that many related things to sell, and none as valuable as the actual book he/she wrote. Trust me, I know plenty of successful history authors and what they make.

                 

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                  Mike (profile), Jan 31st, 2008 @ 6:36pm

                  Re: Re: Re: Re: Re: Re: Re:

                  Mike, you really don't seem to understand what most authors make. Authors have always been trying to find ways to make more money just to support themselves. In the example I gave above about a Jesse James book - how in the hell does a western history author give his product away for free and make up for it in another way. There's just not a big enough market, not that many related things to sell, and none as valuable as the actual book he/she wrote. Trust me, I know plenty of successful history authors and what they make

                  Corey, we addressed this (even in the comments above). The authors are *still* selling the book itself. The book represents the physical product. And, yes, even though others could potentially copy it, there's just not that much benefit in doing that. The original "official" version is what's going to sell much stronger. It always has.

                  What you seem to be ignoring (purposely? not sure...) is that by giving away the actual content for free, it DRIVES MORE DEMAND for the physical product.

                   

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                    Corey, Jan 31st, 2008 @ 7:52pm

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                    The entire point of the book example to being with is that fact that as technology advances, in 5-10 years from now the large majority of people could be reading on some kind of hand held device. ebooks may or may not replace paper books. If that happens, giving it away for free would only hurt a large majority of authors, because they have nothing else to sell. I also used this beacuse it is an intellecutal property that I know a great deal about. The point is there may be other intellectual properties in the same boat. How much merchandising was there for the movie of Bridges of Madison County, for example.

                    The bottom line is books, movies, and books are a form of entertainment and a product in themselves. Instead of the tactic you are taking, you may want to realise this, and while promoting your economic model, realise that it won't work for everything and that copyright is still important. With the way you present it, you are convincing people here that whatever they are able to copy for free its ok to do, and if the creater doesn't make money as a result its their fault for not having a better business model. Its just giving people another excuse to justify stealing something that they should be paying for.

                     

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                      Mike (profile), Jan 31st, 2008 @ 8:03pm

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                      How much merchandising was there for the movie of Bridges of Madison County, for example

                      Huh? What's merchandising have to do with anything? The various models for the movie industry have little, if anything, to do with merchandising.

                      The bottom line is books, movies, and books are a form of entertainment and a product in themselves.

                      They are *today*. The point is that unless they adjust their models, that won't be sustainable. I'm not suggesting this is a model I *want* to happen. I'm saying this is the economic forces that *are* happening.

                      Instead of the tactic you are taking, you may want to realise this, and while promoting your economic model, realise that it won't work for everything and that copyright is still important.

                      But, that's the thing. We've already seen that it does work in all of the spaces you describe, so I find it hard to see why you insist it doesn't work. More fundamentally, the economic forces at play are pretty clear here. They're going to impact these markets, and the alternative models will work, and will be bigger than the existing markets.

                      With the way you present it, you are convincing people here that whatever they are able to copy for free its ok to do, and if the creater doesn't make money as a result its their fault for not having a better business model. Its just giving people another excuse to justify stealing something that they should be paying for.

                      Again, that's simply false. I am not justifying anything. I am suggesting that the content creators themselves look to embrace these models before they're forced to do so.

                       

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                  4-80-sicks, Jan 31st, 2008 @ 8:27pm

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                  Corey, I'm sorry I missed that other thread. I would have liked to discuss it with you. I think you're quite wrong. I don't expect to change your mind, but I enjoy debate.

                  On your points in this one: Mike's/Techdirt's suggestions require thought. Never has he said that a company should just give everything away for free. The idea is to monetize things that can't be digitized. People are trading your music files, or books, on the internet? Let them, and concentrate on making your money in other ways.

                  Why let them? It's your content. Why should you allow it to go on? Well, because they're going to, whether you allow them to or not. So, stop going after them. Stop spending countless resources, because you will never defeat the problem. It's easier for you (as a hypothetical business) to let that go and monetize other things.

                  What things? Well it will vary by the industry, by the company, by the product, by the version. As I said, it requires thought. But when you put your effort into that thought instead of into fighting a meteor storm with a shotgun, your customers are much happier--and you make a whole lot more money than you were before, if you do it right. But, as with any time you're in business, you have to really do it right. Why is it, exactly, that content should get a free pass?

                  Read this article linked today in an earlier Techdirt post. I mean really read it. And tell me why it is that mechanics and needlepoint designers should not rise up in a united association and start suing everything in sight, but record labels should. Let me guess: everybody likes music but not everybody likes needlepoint and auto repair? So what? It's only a question of scale. If you cannot provide value that people can't get elsewhere, you have failed, or you will fail, or you should fail. I can buy a cheeseburger down the street from my house for a dollar, but I sometimes choose to travel a few miles and pay much more for a different burger. Why do you think that is? Is it because I feel like going out of my way and spending more money than I have to? Heck no. It's because I want to. Something about the more expensive burger is worth it. If you don't do anything that makes me want to give you money, you don't deserve my money. And it doesn't matter one whit why you haven't succeeded in asking for my money.

                  Mike has pointed out many, many examples, on every level (from the unknown up through the international superstars), in all of the content industries, where this leads to success. I don't know what it would take for you, or the labels/studios/publishers to realize the point. I imagine you never will. I hope that you would. But, as I touched on above, it is the hardest thing in the world to change somebody's mind.

                   

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    Anonymous Coward, Jan 31st, 2008 @ 12:38pm

    Ahh the pesimism

    Negative commentors that don't troll Slashdot because they get modded down aside, pretty cool stuff!

    It's interesting to see how this kind of thing works when you can't get involved yourself and I'm glad there are some smart people out there.

    Still kind of sad that as time progresses more and more of the 'alternate timelines' in sci fi/cyberpunk books seem less 'fantasy' and more 'reality'. The more I read online and hear on the news, the more it seems like American business is going to cause some problems for this country in the future.

    Just hope it doesn't lead to the extremes (read: war) it does in some of my favorite books.

     

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    SomeGuy, Feb 1st, 2008 @ 5:03am

    @4-80-sicks

    "Why let them? ... because you will never defeat the problem."

    I think that's the wrong track to take, though it seems to be a popular reasoning. It seems to say, "people are evil, and if they can rip you off, they will. So don't let them." Instead I think a better way of looking at it is, "You don't HAVE to change your ways, but if you don't take ADVANTAGE of people's desire to share digital content, someone ELSE will. And that some one else will get wider exposure and will be able to leverage that to make more money. And YOU will be forced out of business because you aren't providing what the consumers want."

    File-sharing isn't a problem, it's an opportunity. The current regime's biggest mistake is that confusion, and perpetuating the idea helps no one.

     

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      4-80-sicks, Feb 1st, 2008 @ 12:54pm

      Re: @SomeGuy

      I think that's the wrong track to take, though it seems to be a popular reasoning. It seems to say, "people are evil, and if they can rip you off, they will. So don't let them."

      My wording gives the wrong impression, then. I intended to convey it the way you did. I definitely see where your interpretation diverges from what I meant.

       

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    Debunked, Feb 1st, 2008 @ 9:55am

    Definitions Needed

    In order for real learning to take place on this site we have to agree on generally accepted definitions. I would propose that there is way too much confusion (some purposefully or accidentally advanced by Mike) between micro and macro economics. These are two radically different disciplines. While Mike has made progress in advancing the micro agenda he is losing ground on the macro level and is increasingly marginalizing himself in the bigger political picture by not clearly differentiating the two disciplines.

    Here is a crass analogy (only attack the analogy if it doesn't fit its only purpose here which is to illustrate a difference between micro and macro thinking).

    If you are a healthy 23 year old, you can individually benefit tremendously by not buying health insurance. It will be overpriced and your chance of getting sick is very low. On the micro economics level you make a choice and benefit from it. You would however be sadly mistaken if you were to insist that on a macro level that government or the whole population should follow your lead and go without health insurance.

    On the giving things away for free side when Mike talks about it working he is correct when counseling individual players on a micro level to try that as a stategy. However to jump from isolated correct individual behaviors to a recomendation that this be tried on the macro level by all the players in an industry is as far-fetched as the health insurance example above.

    Without the above proposed micro/macro distinction when somone like me is questioning Mike about the macro side and 10 other people pile in with responses like "he gave examples and proved it" and they are commenting on the micro side then we are just talking past each other and not helping each other to learn. If Mike trusts the "wisdom of the crowd" that he is trying to build his business upon then it is incumbent upon him and others in this discussion to make agreements about commonly accepted definitions like micro vs macro economic theory.

     

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      4-80-sicks, Feb 1st, 2008 @ 1:58pm

      Re: Definitions Needed

      Examples are examples. Mike has occasionally touched on theory, but this is not a textbook. It's editorials, based as editorials are on things that have happened. I don't think the whole macro vs. micro thing applies. You're not supposed to read this site and look at, say, Prince allowing a newspaper to distribute a free copy of his album with every paper and say "I too will get a newspaper to include free copies of my album!" Instead, see the example and say, "How can I, too, take advantage of a major social trend, instead of fighting it?"

       

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      4-80-sicks, Feb 1st, 2008 @ 2:08pm

      Re: Definitions Needed

      In fact right here on this page, Mike wrote: I have never said that one business model will work for everything.

       

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      Mike (profile), Feb 1st, 2008 @ 5:47pm

      Re: Definitions Needed

      I would propose that there is way too much confusion (some purposefully or accidentally advanced by Mike) between micro and macro economics. These are two radically different disciplines. While Mike has made progress in advancing the micro agenda he is losing ground on the macro level and is increasingly marginalizing himself in the bigger political picture by not clearly differentiating the two disciplines.

      Not true at all. I frequently address the macroeconomic issues. Almost all of the economic research I point to covers macroeconomic studies. The microeconomics are merely "ground up" examples that show why the macroeconomic results make sense.

      On the giving things away for free side when Mike talks about it working he is correct when counseling individual players on a micro level to try that as a stategy. However to jump from isolated correct individual behaviors to a recomendation that this be tried on the macro level by all the players in an industry is as far-fetched as the health insurance example above.

      Again, this is not so. Look at the research. It's all at the macro economic level. Yet, when I point to that, people insist that it doesn't work at the micro level. So we point to people at the micro level, and now you insist it doesn't work at the macro level?

      Sorry... I don't buy it.

       

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    SomeGuy, Feb 1st, 2008 @ 12:01pm

    @Debunked

    So, here are my thoughts: a healthy 23-year old telling The World that health insurance isn't necessary is different from a Musician (or economist) telling other musicians (or economists) that giving away infinite goods in order to drive demand for finite goods. That is, not everyone is a healthy 23-year old, and the situation of a sickly 87-year old is much different. However, all musicians (maybe all musicians?) stand to gain by the added exposure that free content provides. This is also NOT a publicity stunt; it does not ride of the fact that giving stuff away is novel or against the grain. By giving out content people are exposed to your talent and, being exposed, demand more.

    Not all people can benefit from a 23-year old's good health, but all entertainers can benefit from increased exposure.

     

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    SomeGuy, Feb 1st, 2008 @ 12:10pm

    @Corey

    If the market is small then it seems to me that you can benefit THAT MUCH MORE from exposure. I would be interested in a history book about Jesse James -- and as I said, I would buy a real book even if I'd been given a free one, if I liked the content. How many Jesse James books do I own? None. Mostly because I wouldn't know the first thing about trying to find one. I don't belong to a Wild West fan club. And even at that, I'm unwilling to spend the $10 to $20 such a book would cost without having some confidence in the quality of the book. *I* could write a book about Jesse James, but it wouldn't be very good, so what assurance do I have that any other random book is any good?

    The point is, exposure will help you reach more of the market, even if it's a small niche market. You complain that other people might copy your book and sell it as theirs, but Mike's already given examples where being the "official" copy makes a significant difference (the 9/11 Commission, to be exact). Your complaints end in theory as you haven't yet given an example of an actual book which was hurt by extra exposure. Trying Mike's model is probably risky, but if you don't take the risk then someone else will, and if it works (and Mike has pointed to economic factos saying it will work) then you'll either have to switch over yourself or ride an obsolete business model which will end up costing you money for lack of exposure.

     

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    Debunked, Feb 1st, 2008 @ 2:42pm

    Any IP Model you Want as Long as its free

    Mike wrote: I have never said that one business model will work for everything.

    Of course he also said (and I paraphrase in a humorous way and I hope you take it that way):
    You can have any business model you want as long as the digital part of it is free.

    Kinda of like Ford saying "You can have any color of car you want as long as it's black."

    How is this not price fixing? Price fixing at the price of zero.

     

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      Mike (profile), Feb 1st, 2008 @ 5:50pm

      Re: Any IP Model you Want as Long as its free

      Of course he also said (and I paraphrase in a humorous way and I hope you take it that way):
      You can have any business model you want as long as the digital part of it is free.... How is this not price fixing? Price fixing at the price of zero


      No, it's not price fixing at all. It's reality. It's more like saying, you can fly, other than gravity. The fact that the price of infinite goods goes to zero is a force, like gravity. It's not something I want to happen. It's not something I say you *should* do. It's not something I *force* you to do, it's something the economics will force companies to do if they want to stay in business.

      That's not price fixing, it's the market.

       

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    Debunked, Feb 1st, 2008 @ 3:02pm

    Answer own Question

    How is this not price fixing?

    From Wikipedia:
    "It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit. In the United States, price-fixing also includes agreements to hold prices the same, discount prices (even if based on financial need or income), set credit terms, agree on a price schedule or scale, adopt a common formula to figure prices, banning price advertising, or agreeing to adhere to prices that one announces. [3] Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products."


    Please note that it does not matter if is for a "good or altruistic cause". Also please note the clause [3] above referencing price fixing by buyers.

    Please note that Mike would probably (and may have already done so) argue that price fixing adds inefficiencies to the economy.

     

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      Mike (profile), Feb 1st, 2008 @ 5:51pm

      Re: Answer own Question

      Please note that Mike would probably (and may have already done so) argue that price fixing adds inefficiencies to the economy.

      Indeed, I have. But price fixing is VERY different than having the market set the price. Confusing the two doesn't help your case.

       

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    Debunked, Feb 1st, 2008 @ 6:55pm

    Again why we need definitions...

    Mike quotes:
    "Indeed, I have. But price fixing is VERY different than having the market set the price. Confusing the two doesn't help your case."
    "That's not price fixing, it's the market."



    Nice dance- by market I assume you mean the free market.

    Wikipedia quote from "free market" search:
    "The key principle of a free market is voluntary exchange. If an exchange takes place under coercion or fraud, then that exchange is not considered a free market exchange."

    Let your readers decide whether the free market is really setting the price based on the Wikipedia quote. I believe the free market principles are not setting the price because there is fraud involved (call it infringement if you will).

    So once again the pieces of the definition of price fixing from wikipedia:
    "It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit."

    "[3] Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products."

     

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      Mike (profile), Feb 1st, 2008 @ 7:15pm

      Re: Again why we need definitions...

      Nice dance- by market I assume you mean the free market.

      Uh, what dance? Yes, the free market. The rest of your comment basically defines the free market, right? All I'm saying (despite what you are incorrectly claiming) is that the free market will set price at marginal cost. That's got nothing to do with price fixing. Price fixing is the opposite. It's collusion to set the price at something *other* than marginal cost.

      For you to argue that an efficient market setting the price is price fixing is so ridiculous, I don't even know what else to say.

       

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    Debunked, Feb 1st, 2008 @ 7:49pm

    Again the definitions problem

    Mike quote:
    "Price fixing is the opposite. It's collusion to set the price at something *other* than marginal cost."


    Show me in wikipedia definition or other source where price fixing has anything to do with "marginal cost".

    And even if I granted you your "marginal cost" redefinition of price fixing, a price of zero would still be below the total cost of IP which is the "development cost+the distribution cost". So even if the distribution cost= zero the development cost is greater than zero and then even under your "breaking the argument rules redefinition to include marginal cost", that would still be a strong indicator of price fixing.

    So once again:
    Wikipedia quote from "free market" search:
    "The key principle of a free market is voluntary exchange. If an exchange takes place under coercion or fraud, then that exchange is not considered a free market exchange."

    Let your readers decide whether the free market is really setting the price based on the Wikipedia quote. I believe the free market principles are not setting the price because there is fraud involved (call it infringement if you will).

    So once again the pieces of the definition of price fixing from wikipedia:
    "It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit."

    "[3] Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products."


    You can have the last word, because I really can't play this constant redefinition game. When you are willing to trust the wisdom of the crowd and can stay within some generally accepted definitions we can bat this around some more.

     

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      Mike (profile), Feb 1st, 2008 @ 10:29pm

      Re: Again the definitions problem

      Show me in wikipedia definition or other source where price fixing has anything to do with "marginal cost".

      Huh? Now you're using Wikipedia as a definitive explanation of economics?

      And even if I granted you your "marginal cost" redefinition of price fixing, a price of zero would still be below the total cost of IP which is the "development cost+the distribution cost".

      And by saying that you show you don't have the slightest understanding of economics. Marginal cost is almost ALWAYS less than "development cost+distribution cost," but that doesn't make any difference in the world. Price gets driven to marginal cost in a competitive market, no matter what the development costs are. There's a difference between fixed costs and marginal costs.

      So even if the distribution cost= zero the development cost is greater than zero and then even under your "breaking the argument rules redefinition to include marginal cost", that would still be a strong indicator of price fixing.

      No, it's not. Price = marginal cost is the sign of an efficient market. Price fixing is actively agreeing to not have an efficient market. Price = marginal cost is actually proof that there is no price fixing.


      Let your readers decide whether the free market is really setting the price based on the Wikipedia quote. I believe the free market principles are not setting the price because there is fraud involved (call it infringement if you will).


      You are missing the point. I'm saying that price gets driven to zero even *ABSENT* any infringement. It's the natural price. What happens is that content creators recognize the business models where they can do better by giving away the content for free. And it's *that* competition (not infringement) that drives the cost to zero. There's no fraud. There's no coercion. There's no price fixing. There's only the market.

      So once again the pieces of the definition of price fixing from wikipedia:
      "It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit."


      That's not what we're talking about here at all. We're talking about the efficient market price. I can't believe I'm actually having this conversation.

      You can have the last word, because I really can't play this constant redefinition game.

      There has been no redefinition at all. So far, it has merely been you quoting wikipedia. My definitions have always remained constant and true to basic economic principles. You don't learn economics through definitions. You learn economics by understanding the principles.

      If you can explain to me how having the market set an efficient price could ever be price fixing, I'd love to know about it, because it would violate the very basic fundamentals of economics.

       

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        Corey, Feb 2nd, 2008 @ 4:43pm

        Re: Re: Again the definitions problem

        Mike, Debunked is right on about your "free market". If people were just chosing not to buy music that would be the free market controlling the price, but when they are choosing not to buy music because they can steal it, that is not the free marekt in action.

         

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    Debunked, Feb 3rd, 2008 @ 5:52pm

    Followup to Definitions Problem

    Me: Show me in wikipedia definition or other source where price fixing has anything to do with "marginal cost".

    Mike: "Huh? Now you're using Wikipedia as a definitive explanation of economics?"

    1. I see you evaded the question.
    2. Wikipedia works just fine for agreeing on terms for a discussion.
    3. We are not needing a definitive explanation- you need to use words the same way other people do
    4. Fairly recently you and others published articles praising Wikipedia for its surprising accuracy given the semi-chaotic way information is codified.
    So its only accurate unless it contradicts something you say? Keep in mind we are only using wikipedia because you keep redefining words.
    5. If you are so sure your way is the correct definition then go ahead and post it over there at wikipedia and see if it catches on.
    6. To be even more sure in this article on price fixing they are in part quoting from the Sherman Antitrust Act which is what it is and it is highly unlikely that it is seriously misquoted or mischaracterized.



    Me: And even if I granted you your "marginal cost" redefinition of price fixing, a price of zero would still be below the total cost of IP which is the "development cost+the distribution cost".

    Mike: "And by saying that you show you don't have the slightest understanding of economics. Marginal cost is almost ALWAYS less than "development cost+distribution cost," but that doesn't make any difference in the world. Price gets driven to marginal cost in a competitive market, no matter what the development costs are. There's a difference between fixed costs and marginal costs.

    1. Once again nowhere is "marginal cost" part of the wikipedia article/Sherman Antitrust Act. On the legal side the law is very clear that "reasonableness" is not allowed in any proceeding. Why? Because the lawmakers knew that the first thing any group (including buyers) price-fixing would pull out in court is that they arrived at the most "reasonable" price. So that is not allowed. wikipedia quote:"It does not matter if the price agreed upon is reasonable or for a good or altruistic cause;"
    The law is clear. As an aside I don't know and don't want to look up if parts of "reasonableness" are allowed at the sentencing phase.
    2. On the economics side of the argument thanks for the ad hominem attack and I quote, "And by saying that you show you don't have the slightest understanding of economics." Usually people use this well known logical fallacy when the are trying to protect a weak position. Which tipped me off to look up the wikipedia definition of "marginal cost".
    3. Mike quote: "Marginal cost is almost ALWAYS less than "development cost+distribution cost," but that doesn't make any difference in the world."

    Wikipedia quote on "marginal cost": "In practice, the analysis is segregated into short and long-run cases, and over the longest run, all costs are marginal."
    Your statement about marginal cost is that it is almost ALWAYS less than the costs that I mentioned. You have redefined "marginal costs" to fit your theory in a circular, self-referencing fashion. You can't do that. Wikipedia says and I repeat "...and over the longest run, all costs are marginal". You are misusing and redefining the term "marginal cost". Since you have used that term incorrectly defined in numerous past posts/theorizing then it would be indicative that your theory is possibly built on a flawed foundation.


    ******
    Your redefinition of the word "marginal cost" is why I had to jump back in. In an argument that is trying to pin down the definitions of words used extensively in the argument, it would be considered a highly counter-intuitive move to come back with another "misdefined" term.
    ******




    Mike quote:
    Price = marginal cost is the sign of an efficient market. Price fixing is actively agreeing to not have an efficient market. Price = marginal cost is actually proof that there is no price fixing."


    1. Here we go again. Price fixing is a legal question. They are not going to allow anyone to redefine it in court to suit their purposes. The law specifically prohibits a defense that price fixing is "reasonable" or that it is the most "efficient". Not allowed. I have printed and reprinted this synopsis section of the law several times.




    me :Let your readers decide whether the free market is really setting the price based on the Wikipedia quote. I believe the free market principles are not setting the price because there is fraud involved (call it infringement if you will).

    Mike:You are missing the point. I'm saying that price gets driven to zero even *ABSENT* any infringement. It's the natural price. What happens is that content creators recognize the business models where they can do better by giving away the content for free. And it's *that* competition (not infringement) that drives the cost to zero. There's no fraud. There's no coercion. There's no price fixing. There's only the market.


    Mike- "...price gets driven to zero even *ABSENT* any infringement."
    me- As long as it is in the economic best interests of any seller and there is any willing buyer then the average price in a non-fraud free market has to average greater than zero.

    Mike- It's the natural price.
    me- Again the definition problem. This sounds wonderful and lends an artificial gravitas to your argument. Define "natural price". I have to assume that this is being used as a placeholder for free market price. Are you trying to bring philosophers like Kant and Locke into the discussion? We all come into this world "natural" and naked but we still dress in clothes.

    Mike- What happens is that content creators recognize the business models where they can do better by giving away the content for free.
    me- Some creators recognize that it is in their best interest and offer it for free (that is their right) and some do not (that is their right). The average of those transactions in a non-fraud free market will never equal zero.

    Mike- And it's *that* competition (not infringement) that drives the cost to zero.
    me- The average of those transactions in a non-fraud free market will never equal zero. We have established that fraud has impaired the free market. You mention competition, but true competition cannot by definition exist unless it is a free market. In a basketball game where the referee is dirty it does invalidate the competition. Those players are still competing but the results are still less valid. Do you see how fraud trumps competition by tilting the playing field?

    Mike- There's no fraud.
    me- We have already proven fraud (infringement on a large scale)

    Mike- There's no coercion.
    me- The definition says coercion or fraud makes it a non-free market. I proved fraud. I don't need to prove coercion.

    Mike- There's no price fixing.
    me- That's not for you or me to decide but for a judge or a jury or the readers intelligence.

    Mike- There's only the market.
    me- A market that for these set of transactions is not free because of fraud.



    Let me invent a hypothetical composite poster comment similar to numerous posts on this site:

    "I would be happy to pay a reasonable price for a song from a record company or an artist, for instance .15 cents a song. If they don't find that acceptable then screw them (insert here usually the RIAA) I will download it for free."

    This is not the free market. It can only by definition be a free market exchange if it does not involve fraud:
    Wikipedia quote from "free market" search:
    "The key principle of a free market is voluntary exchange. If an exchange takes place under coercion or fraud, then that exchange is not considered a free market exchange."

    In addition:
    If a strong subsection of the posters (buyers) communicate a range of prices in tacit agreement then there may or may not be prosecutable "price-fixing".
    See the Sherman Antitrust Bill and/or consult with your lawyer to determine your possible exposure level. I found this juicy tidbit on wikipedia about the antitrust law (which also can be applied to groups of price-fixing buyers). After stating that Attourney Generals, etc can bring suit, get this:

    wikipedia quote: "Private individuals or organizations can bring their own lawsuits for triple damages for antitrust violations and also recover attorneys fees. [7]."
    I think this antitrust law has some teeth in it to put it mildly.


    So once again the pieces of the definition of price fixing from wikipedia:
    "It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit."

    Mike quote: That's not what we're talking about here at all. We're talking about the efficient market price. I can't believe I'm actually having this conversation.


    1. Could you please define "the efficient market price". Interestingly you put a "the" in front of it and made "price" singular. It is a clue that the "the" and "price" are singular as if the price were fixed since one sign (amoung others) of a properly unfixed (free) marketplace might be that prices would be plural and would vary by producer/seller. Mike, we already know what specific amount you think "the efficient market price" is. Are you and a group of buyers legally allowed to work together to fix the price actively or tacitly under the Sherman Antitrust Act?



    Mike
    "There has been no redefinition at all. So far, it has merely been you quoting wikipedia. My definitions have always remained constant and true to basic economic principles. You don't learn economics through definitions. You learn economics by understanding the principles.

    If you can explain to me how having the market set an efficient price could ever be price fixing, I'd love to know about it, because it would violate the very basic fundamentals of economics."

    Mike- There has been no redefinition at all.
    me- check wikipedia for "price-fixing", "free market", and "marginal cost" (redefinitions all detailed above or in previous post in this series)

    Mike- So far, it has merely been you quoting wikipedia.
    me- See top of this post about wikipedia. Sorry that it doesn't agree with you.

    Mike- My definitions have always remained constant...
    me- It would be small consolation to my parents if I showed them "constant" grades of "D" on my report card. And interesting that you claim them as "MY-as in Mike's" definitions. As far as I know they are "our" definitions and to resolve them we reference an external source. That is part of the rules of argument. Also when a new term or unknown term is introduced all players generally want to agree on the term. Occassionally it becomes necessary to invent new terms or language to properly trace out complicated arguments. In that case, generally the term should be specified/defined and agreed upon before proceeding.

    Mike- "...and true to basic economic principles."
    me- We will let the readers decide.

    Mike- "If you can explain to me how having the market set an efficient price could ever be price fixing, ..."
    me- the free and unfrauded market does not price fix, groups of people (suppliers or buyers) working together setting prices is price fixing. And once again price fixing and efficency are not legally related (see details above)

     

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      Mike (profile), Feb 5th, 2008 @ 3:43pm

      Re: Followup to Definitions Problem

      Debunked,

      Taking my comments out of context, and then making up things doesn't help your argument.

      Based on your argument, ANY price could be considered price fixing, as a group of people (the sellers) set that price.

      In my model, there is no price fixing at all. No one is required to set any price. They can set whatever price they want. The point is simply that if they set the price of infinite goods at a non-zero price, there will be an opportunity for the competition to beat them with a model that uses a zero price. Again, that has nothing to do with infringement.

      You bring infringement back into this because you need it to make your argument. But, as I pointed out, my argument holds even absent infringement. You claim: "The average of those transactions in a non-fraud free market will never equal zero."

      That's simply false. Throughout history, there have always been markets where the transactions of non-fraud free markets included products at a zero price. However, most of the time, it's for "products" that you wouldn't consider products at all -- such as advertising or promotional goods. You don't "pay" to see that BMW commercial. Yet, it's not because of fraud. It's because BMW knows that the end result, in aggregate, will be better for BMW to "give away" those commercials for free.

      Is BMW price fixing for giving away those commercials for free?

      According to you, yes. Luckily, most of the rest of the world recognizes how silly that is.

       

      reply to this | link to this | view in chronology ]

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    identicon
    4-80-sicks, Feb 4th, 2008 @ 12:40pm

    Pirate Bay, which serve no other purpose then for people to download copyrighted works

    This is not true as you have presented it. First of all, every work is copyrighted. So even if I write a book and put it on Pirate Bay (which people have done), your sentence is true even though it has a completely different meaning.

    file sharing in cases like theirs is costing them money, not benefiting them.

    I don't believe that it does cost them money, because once again, people downloading high-priced software packages (or books or whatever) from Pirate Bay or wherever were very unlikely to buy them anyway, even if that was the only way to get them.

    I don't think that piracy can be contained. All kinds of things have been done so far, and it only grows. You're right that this is a relatively young phenomenon, but with increasingly powerful encryption and increasingly high bandwidth internet connections, what's going to happen? As we have seen with Kazaa, Napster, et al, it is certainly possible to go after one such "service" but when it is shut down, multiple others appear to replace it.

    Your withholding financial aid theory is interesting, but does Switzerland really need money from the U.S.? Also, I don't feel that the government should be stepping in in these civil cases. The government is in place to protect people, not corporations and publishers. Don't tell me they need it. Of course, the line gets blurred with lobbying and "donations" and such. In any case, I doubt it can be effective.

    We are going around in circles. Everything we've said here has been said here before. I may or may not continue this discussion with you, but I don't think it will be productive for either one of us.

     

    reply to this | link to this | view in chronology ]

  •  
    identicon
    Martin Gibbons, Apr 10th, 2008 @ 1:42am

    THanks Mike

    Thanks Mike for bringing The Valley a little closer to Scotland. It was great to meet you and as a small online business owner, I really benefited from your workshop. Cheers : www.peoplemaps.com

     

    reply to this | link to this | view in chronology ]


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