A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy

from the misunderstanding-the-premise dept

Took a week off from my series concerning the economics of abundance, but wanted to jump right back into it this week. I started out with a discussion on how the number zero seems to screw up otherwise sensible people when it comes to economics, and followed that up with a post on the economics of abundance is not a moral issue. I had planned to move on to more about the actual economics, but the responses have delayed that for at least a little while.

Some of the complaints about the last piece highlighted one aspect that perhaps I had not made clear: unauthorized downloads, "piracy" or "stealing content" (if you want to use those phrases) have almost nothing to do with this discussion. People criticizing the posts on this topic keep going back to the idea that this is all some big defense of such practices when nothing is further from the truth. This series is very much written from the perspective of the producer of content, not the consumer. That is, we're trying to make clear the basic economics so that the producer of the content can use that to his or her advantage. So, the lack of scarcity we're talking about is based on the fundamental nature of the content: that it has zero marginal cost to make a new copy once the original is made. That's a simple fact that has nothing to do with whether or not people are making unauthorized copies. That nature of the content is fundamental. So everything that we're saying here applies just as much to content if there were no "piracy" at all. If there were an industry where there was a lack of scarcity, but no piracy, the information here would apply just the same.

Now, I do say "almost" nothing to do with piracy. The way that unauthorized copies play into this discussion is in the realization that they're a fact of the marketplace. That is, they're helping to accelerate the impact of that lack of scarcity, and only helps to highlight why the producers of content need to pay attention and make changes sooner, rather than later. Many of the recent actions taken by organizations like the RIAA, the MPAA and the BSA represent a fundamental misunderstanding of this fact. They believe two things that are absolutely wrong. First, that the lack of scarcity is only due to piracy and, second, that there's some way to really stop piracy. Both of these things are wrong. The lack of scarcity is due to the fact that the content has zero marginal cost -- which is true no matter what, and unauthorized copies are always going to be an issue. So, based on that, why not try to understand what happens when you have a lack of scarcity and how to profit from it, rather than fighting the obvious trend?

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  1. identicon
    Scorpiaux, 6 Jan 2008 @ 7:41pm

    Cost of development and distribution

    It is absurd to argue that once a new product is developed, there are almost no further costs. First, whether a new jumbo jet is being prototyped, developed, and then delivered or a new piece of music gets written, gets developed into a marketable piece of work and then the original first copy gets produced, not only those costs but the costs of duplicating, inventorying, and marketing must be taken into account. Those costs are not zero. Not only that, profits may not appear until a substantial portion of the final number made has been successfully sold. That could be weeks, months, or years later. People work hard in the creation of ideas, products, patents, copyrights. Success is not as frequent as failure. Why add to the burden of a creator the prospect that his or her creation(s) will likely provide no financial reward and probably produce a net minus revenue stream by allowing access to content without the recipients paying for it? What happens to incentive then?

    I recall watching an interview by an American of a Chinese national software developer in China a few years ago why he didn't sell his programs on the Chinese market. His answer was simple. Paraphrasing, because as soon as he provided an original for marketing it was quickly copied and sold cheaper than it cost him to make it. The sellers had no development costs, so they could sell cheap something they did not make and since China did not respect intellectual property as property, they were free to copy anything they wanted without penalty. Notice that China has no software development industry. Whatever development is going on is treated as a trade secret or a government secret. There are people here that somehow think this is better? Not I.

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