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 Z, 29 Nov 2006 @ 1:19pm

    Save imperical data please.....

    My primary issue with this series is it's total lack of empirical data. Anecdotes are helpful, but in the science of economics they almost always lead the observer to the wrong conclusion.

    I am a statistical economist - as you may remember from my comment on your first series article, I studied marginal transaction cost theory. The evidence is on your side, but you need to roll up your sleeves, do a little research, then present it. Let me give you a little help on where to start looking:

    As I stated in my earlier post, there will always be two finite resources in this debate: The size of the consumer's wallet, and the amount of free time a consumer has to spend on any given subject.

    Lets take two goods that have a marginal transaction cost of zero: TV content and Music content.

    Over the last five years, the music industry has compained that music content has taken a financial beating. But, the empirical data easily disproves this. In fact, the amount of total expenditures on music related purchases has gone up over the last 6 years (mp3 players, XM/Sirius equipment, live concerts, mp3 downloads, cable music channels, etc...), as has the amount of free time consumers devote to music related experiences (commuting with mp3 players, portable satellite equipment, etc...). So, while one aspect of the music business has flattened, as a whole it has taken "share" of the consumer wallet and time allocation. This is fairly easy data to find and present, and will quiet many detractors.

    Conversely, Television has lost both consumer wallet share and time allocation, despite the fact it started with zero cost model (again, this is very easy data to find). The primary difference between these two: The ease in which the consumer can choose the channel and time to purchase and use the product.

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