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
    Alex Hagen, 29 Nov 2006 @ 4:50pm

    Re: Re: Missing the point again

    "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"

    Um, perhaps you misunderstand. I am not implying that it is more efficient for the world at large, but they are more efficient for the company. Monopolies gain from advantages in economies of scale and they gain from abnormally higher prices. From a company standpoint, being a monopoly is good. We need laws to stop them because it is bad for society at large.

    "And pollution is a negative externality -- which means it has an economic cost."

    But not to the company doing the polluting. That's the whole point of my argument. Economics alone will not keep that company from polluting, and we need laws to stop them because it is bad for society at large.

    "The point of these posts is to explain how these laws do not produce the desired impact"

    So you agree with the basic premise that these laws exist to counterbalance pure economics to get a desired impact? That would be a start. If the laws do not give the results that we desire, we will of course change them. These laws have worked decently well for 200 years, I think they can be modified to work. Don't you think it is a bit early to throw them all out and start from scratch?

    "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."

    I agree with you there, at least where patents are concerned. It's harder to make that argument about copyright. But I think that completely giving up on them and finding some mystical other way is way too reactionary.

    "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."

    Removing IP laws will be a huge market failure, and will destroy entire industries. You know, I await with bated breath your ideas on how musicians, programmers, or drug companies are going to make money in a IP-less world, or what their motivation to create is going to be.

    "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?"

    Oh come on, you are just being silly now. Yeah sure, there is a huge contradiction between being for the breakup of AT&T and being against the ability for Justin Timberlake to control what happens to his music. Please.

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