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
    Evostick, 30 Nov 2006 @ 4:05am

    Cost of Zero - 2 Empirical examples

    The online economies (second life, magic swords in fantasy games) are also in a bit of a mess due to the zero replication cost. The fact that the market is virtual is irrelevant. Though I think you may have covered this in previous posts.

    What follows may seem off topic, but if keep an open there are parallels.

    There is a much more common (in terms of value and of people using them) real life example of Cost of Zero - Financial Derivatives.

    Banks set up an agreement between two parties where one will owe the other a prescribed amount of money at a future point in time, dependent on an event happening or not happening.

    Value is created. One party holds an asset (which is equivalent to money as it can be traded for cash), the other has to pay the asset holder at some future point.

    Creating more derivatives is pretty much zero cost.
    The big difference between this example and IP is that there is no content to start with.

    (If Financial Derivatives are unfamiliar, then the above could be re-expressed in terms of taking out Insurance and borrowing the Insurance premium from the bank)

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