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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    Mike (profile), 29 Nov 2006 @ 4:12pm

    Re: Missing the point again

    This is a case where pure economics fails us.

    Hmm. No, it doesn't. It only appears fails us if you misunderstand economics -- usually because you don't understand the impact of zero (see earlier post).

    From a pure economics standpoint, monopolies are more efficient, polluting is much more profitable, and cheaper but more dangerous products are acceptable.

    This shows a woeful misunderstanding of economics -- so it's hard for me to take your other points seriously. Monopolies usually are not at all efficient, hence the concept of monopoly rents. And pollution is a negative externality -- which means it has an economic cost. Just because you ignore that cost doesn't mean economics does.

    We have laws regarding IP precisely because economics alone can not gain us the outcome we desire, just as we have anti-monopoly, pollution, and product safety laws.

    Indeed, and if those laws do not create the outcome we desire, then what? The point of these posts is to explain how these laws do not produce the desired impact (and as you can see from other posts here, anti-monopoly laws often have the same problem, and many anti-pollution laws don't correctly deal with the externality issue either -- all due to a lack of understanding of economics).

    We give an unfair (by economic terms) advantage to the creator of something because we want to encourage creation.

    Yup. I agree there. But, the whole point is that these things DO NOT encourage creation in many cases. In fact, there's plenty of evidence that they hinder creation by allowing creators to rest on their laurels.

    The point of gov't intervention is to deal with market failures (as is the case with certain monopolies). The point I'm trying to make is that if there's no market failure, then there's no need for government intervention. It seems pretty clear that the market is providing plenty of incentive to create new content, new products, etc. So, why do we need this *extra* monopoly right?

    Besides, I find it amusing that you first complain that monopolies are bad, but then advocate millions of monopolies handed out by the government. Can you explain that contradiction?

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