Trying To Explain The Economics Of Abundance In Two Minutes Or Less With A Whiteboard

from the well,-it's-something... dept

UPS recently asked us to create a series of three videos, where we try to explain some of the stuff we talk about here on Techdirt in under two minutes, using a white board. You can check out the first video here, where I attempt to give a quick visual explanation of the economics of abundance. It’s a complicated topic — so narrowing it down to less than a minute obviously involves simplifying some of the concepts greatly, but it should kick off a fun discussion.

There are two more videos that will come out in the next few weeks. And… since we’ve been having this big disclosure discussion lately, yes, UPS sponsored these videos (as is clearly noted in the video itself), though we had free reign in creating the scripts. As you’ll see, I think it’s pretty clear that nothing in the videos is any different than what I normally say, and none of it is somehow “influenced” by UPS.

Filed Under: ,

Rate this comment as insightful
Rate this comment as funny
You have rated this comment as insightful
You have rated this comment as funny
Flag this comment as abusive/trolling/spam
You have flagged this comment
The first word has already been claimed
The last word has already been claimed
Insightful Lightbulb icon Funny Laughing icon Abusive/trolling/spam Flag icon Insightful badge Lightbulb icon Funny badge Laughing icon Comments icon

Comments on “Trying To Explain The Economics Of Abundance In Two Minutes Or Less With A Whiteboard”

Subscribe: RSS Leave a comment
77 Comments
vivaelamor (profile) says:

Artists = scarcity

I think it is important in these models to always have the option for people to just be investing in the artist. Whether it be by providing a simple donation, set your own price download service or even a more proper investment model, such as the SellaBand service.

I believe this is important for the same reason it is important to not limit the number of business models you build around an artist, because people respond positively to choice. Traditional entertainment business has been about limiting choice to create demand. That makes sense to force people into parting with their money but can limit the amount people are willing to spend and certainly lowers the value of talent. Whereas I might be inclined to strictly budget my spending if I know I can only afford so much, if my spending power is unrestricted then the main driving force behind spending will be how much I like an artist.

Anonymous Coward says:

Re: Re:

“Now, a moron in a hurry might not realize that it is a commercial, rather than a post.”

So basically if UPS did not disclose it it’s a violation of law. If they do then it’s an advertisement. No matter what promoting a veiwpoint that disagrees with you loses in your mind. Good thing others aren’t subject to your broken logic.

Derek Kerton (profile) says:

Re: Re:

Dude, consumers ALWAYS ignore creation costs. They pay market value, NOT creation costs. That is not just the harsh reality of a free market, but it’s fair too.

If I spend 10 hours to bake a decent pizza and $15 on ingredients, and you spend 20 minutes and $10 on ingredients to bake your decent pizza, at what price can we each sell our pizzas to hungry customers? Answer: we will both sell our pizza at the market value, NOT at our costs.

Welcome to remedial econ.

2 out of 3 mbas says:

So far, I have shown the video to three MBAs and they all pretty much laughed. 2 out of three pointed out the very basic issue:

Music and movies are not an abundant resource, at least not at the quality levels the public expects. Pirated copies may be abundant, but that is a situation that even a first year business student knows is not supportable.

The other one hasn’t stopped laughing yet. I will see if he has anything else to say tomorrow.

Drew (profile) says:

Re: Re:

“Music and movies are not an abundant resource…”
Although true in that there are a limited number of Music Albums/Songs and Movies, the ability to replicate said movies makes it an abundant resource. When a company has the ability to take a movie such as ‘300’ and make it available to have an infinite number of copies then the movie itself is an abundant good; however the ability to see it in the theater once, twice, etc. is a limited good. Hopefully your MBA friends understand that simple explanation since they missed Mike’s.

“Pirated copies may be abundant, but that is a situation that even a first year business student knows is not supportable.”
Second, where in the video does Mike talk about Pirated copies? I thought he was talking about the ability of the companies themselves to release a digital form; for instance iTunes or did you forget that you can buy stuff through iTunes and the music could easily be free instead of charged. After all how much did you spend on that iPod or iPhone?

Anonymous Coward says:

Re: Re: Re:

Although true in that there are a limited number of Music Albums/Songs and Movies, the ability to replicate said movies makes it an abundant resource

That’s where the laughing sort of starts. Price is never set by the replication costs alone. The wide consumer user of and desire for music shows that demand isn’t a declining line, but rather one that is constant and increasing. Price zero only occurs naturally where there is no actual demand.

“Pirated copies may be abundant, but that is a situation that even a first year business student knows is not supportable.”
Second, where in the video does Mike talk about Pirated copies? I thought he was talking about the ability of the companies themselves to release a digital form;

Since the cost of Itunes is more than zero, I look at the only place where music has zero cost: Piracy and other giveaways. Itunes doesn’t enter into a discussion of zero cost music.

vivaelamor (profile) says:

Re: Re: Re: Re:

“The wide consumer user of and desire for music shows that demand isn’t a declining line, but rather one that is constant and increasing. Price zero only occurs naturally where there is no actual demand.”

Wow. Are you sure the MBAs were not laughing at you? Apparently you don’t know what a demand curve is. Perhaps you have your graph upside down?

“Since the cost of Itunes is more than zero, I look at the only place where music has zero cost: Piracy and other giveaways. Itunes doesn’t enter into a discussion of zero cost music.”

You either confuse cost with price or neglect the fact that the only costs iTunes has that aren’t artificially imposed by IP rights, are those that file sharing provides for free. Such as bandwidth.

nasch (profile) says:

Re: Re: Re: Re:

I’m not sure it’s worth replying but…

Price is never set by the replication costs alone.

Price in a competitive market tends toward marginal cost. In the case of digital content, zero, or so close as to not matter.

The wide consumer user of and desire for music shows that demand isn’t a declining line, but rather one that is constant and increasing.

I’m thinking you didn’t pay close attention to the chart. That was quantity vs. price, not quantity vs. time. As price goes up, quantity demanded goes down.

Price zero only occurs naturally where there is no actual demand.

Zero price occurs in two cases: zero demand, and infinite supply (think of air).

hegemon13 says:

Re: Re: Re: Re:

“Price zero only occurs naturally where there is no actual demand.”

You are dead wrong here. An infinite supply has the exact same effect as zero demand. Because digital copies can be produced on the fly for no cost, the supply is not just effectively infinite; it IS infinite. Infinity divided by anything is still infinity, so demand is not longer an issue.

hegemon13 says:

Re: Re: Re:2 Re:

I should qualify my “exact same effect” statement: it has the exact same effect ON PRICE, which will tend toward zero. Infinite supply has a much more beneficial effect on both supplier and consumer, however. The supplier gets exposure, recognition, and a platform upon which to build other, scarce, profitable products. The consumer gets a product they like affordably (or free). It is win-win, where a demand of zero is lose-lose. The current labels and associations tend toward the zero-demand end of the spectrum, by demanding insupportable, ever-increasing fees.

Anonymous Coward says:

Re: Re: Re:2 Re:

Again, it’s the standard argument. The digital bytes are “infinite”, but the content itself is not. There are only so many new songs, only so many new albums, new movies. They have not reached any sort of infinite level.

By standing too closely to the subject and focusing on a single piece of standard economic theory, you can miss the slightly bigger picture just out of your peripheral vision. Once you step back, you can see that the only thing that is infinite is the hype.

Derek Kerton (profile) says:

Re: Re: Re: Re:

“That’s where the laughing sort of starts. Price is never set by the replication costs alone. The wide consumer user of and desire for music shows that demand isn’t a declining line, but rather one that is constant and increasing. Price zero only occurs naturally where there is no actual demand.”

Wow. Just wow.

Price IS set by the replication costs alone in competitive markets. You are dead wrong on that point.

“demand isn’t a declining line, but rather one that is constant and increasing”

What? Demand IS a declining line, having a negative relation ship to Price. You are absolutely wrong about the simplest of economics. Bonus clueless points for calling a curve both “constant and increasing”.

“Price zero only occurs naturally where there is no actual demand”
You don’t get to just make up rules that sound good to you. In competitive markets, Price=Supply=MC=MR. The supply curve is a flat line at zero price. If MC=O, then price equals zero at any level of demand. Demand can shift up or shift down, it still intersects S at zero.
I appreciate that this bit of fact seems difficult for some, and can see that you are the type who just doesn’t seem to get it.

Sure, trust your MBA friends if you must. Sounds like they are drunk to me, what with all the laughing and lack of any sense. But note that Mike has an econ undergrad, gets his theories vetted by top econ professors, and also has his own crappy MBA from an Ivy League school. I have my econ degree from a top school in Canada. Believe me, we’re not dealing with cutting edge, fourth-year or graduate-level wacky econ theory here. This is first or second year, basic material. You need to consider that you may be wrong.

Anonymous Coward says:

Re: Re:

When a product, such as a movie or music, can be copied infinitely, without degradation of the original or the copy, it is, by definition, an infinite good. Now I can’t speak for your computer’s abilities, or those of the MBA’s you mentioned, but my computer is capable of making exact copies of digitized movies and music, such as what is released on a cd or dvd. Since I believe this ability is common to pretty much all computers, please explain why your MBA friends say movies or music are not infinite goods. The major problem here is that piracy of these goods is a concept created by an industry that wants everyone to believe in their alternate reality.

Isaac the K says:

Re: -- faulty misunderstanding on the part of the MBAs

The misconception lies in the fact that the PRODUCTION of music and movies are not abundant resources, and the MODES OF CERTAIN EXPERIENCES (concert, theatre, etc.) are also not abundant.

But the music and movies THEMSELVES are.

Once recorded digitally, they cost NOTHING to reproduce. That makes them abundant by definition. The fact that others artificially restrict them doesn’t prevent that.

R. Miles (profile) says:

I'm so glad Techdirt isn't all about copyright.

Because I’m going to borrow these videos and spread them as fast as possible.

This first video is priceless and breaks down a complex situation to a first grade level.

Kudos.

Now the question I should ask is: Should I copy the file and host elsewhere or link back to Techdirt?

I’d at least ask the creator first before I simply just grab it.
๐Ÿ™‚

Looking forward to the next videos, which I hope expand on the “scarcity” side of the equation.

Snidely (profile) says:

Business model of the ads

Mike – Great video. As a non-econ person it broke down a complex subject quite nicely. I am interested to know if you would share the business model around the ads as an example of how you’re monetizing the “free” website. Clearly, UPS paid you to do create the video, but how about some details? Was it a fee for hire where UPS controls the content or do you retain the rights? What was UPS’ goal beyond getting the readers of Techdirt to see their logo for 2 mins? Are they developing some sort of education program around economics?

Roberto Verzola says:

zero price?

There’s a problem with your demand and supply diagram. You draw a horizontal line above the Q-axis and therefore at price greater than zero, and yet you say that price equals zero. It will be hard for others to take the video seriously, if you make such elementary mistakes.

In fact, I would agree that a good can be abundant, even when its price is not zero, as long as it is low enough that everyone can afford all the quantity they want.

Greetings,

Roberto Verzola says:

zero price?

There’s a problem with your demand and supply diagram. You draw a horizontal line above the Q-axis and therefore at price greater than zero, and yet you say that price equals zero. It will be hard for others to take the video seriously, if you make such elementary mistakes.

In fact, I would agree that a good can be abundant, even when its price is not zero, as long as it is low enough that everyone can afford all the quantity they want.

Greetings,

martin gorner says:

nice theory but ...

This is a nice theory so let us see if it applies to myself as a consumer:

I am interested in recordings: YES
I am interested in related merchandise: NO
I am interested in live shows: yes but my wife is not so we go very rarely, so in practical terms this is a NO.

Net result: with recordings costing $0, music artists will get $0 from my wallet.

This is a reality your theory seem to ignore.

Anonymous Coward says:

If you like an artist, or an album that you got for free, odds are that you will tell someone about it and they might want a t-shirt or concert tickets. So, even if you don’t trade any money for the album you can still trade your opinion and influence to the artist in return for the “free” album. It’s called advertising and it is extremely valuable.

Add Your Comment

Your email address will not be published.

Have a Techdirt Account? Sign in now. Want one? Register here

Comment Options:

Make this the or (get credits or sign in to see balance) what's this?

What's this?

Techdirt community members with Techdirt Credits can spotlight a comment as either the "First Word" or "Last Word" on a particular comment thread. Credits can be purchased at the Techdirt Insider Shop ยป

Follow Techdirt

Techdirt Daily Newsletter

Techdirt Deals
Techdirt Insider Discord
The latest chatter on the Techdirt Insider Discord channel...
Loading...