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
    William, 29 Nov 2006 @ 5:10pm

    An lession in economics

    Two things drive prices.
    1) Marginal cost.
    2) Scarcity.
    With copyrighted material the marginal cast of production is close to zero but because of the copyright the the company that owns it has a virtual monopoly so there only concern is maximizing profit. so the record labels ask themselves what is the highest price we can charge without significantly impacting the number of copies sold.
    There are no other legal sources for copyrighted material and therefore record labels can charge whatever they like per CD. They could charge 1000$ per but they wouldn't sell many records.
    Someone said the downloads don't mean sales lost because not everyone who downloads would have bought the product and that is true but some of them would. Because demand is driven by two forces that are opposing each other.
    1) Price.
    2) Desire.
    If you desire something enough you will pay any price to get it. So if I really want a PS3 this year my only option is to pay a higher price on EBay to get it. And likewise I will not buy every CD that comes out but only the ones that are worth more that 14.99$ to me. But if the price is free and the only cost to me is storage then I would buy much much more music.
    It is my firm belief that we will be paying 99 cents per song for a long time so you might as well get used to it. at least you don't have to by an entire album to get one good song anymore.

    P.S. Sorry for being such a downer

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