Re: CD Wow cave to BPI

Chris Lightfoot <[email protected]> writes:
> In your example, they had two business models: (a) sell
> books at $3; (b) sell books at $1, and hope that the
> people who were going to buy at $3 don't discover this and
> save themselves $2. To arrange for this we invent some
> legislation to make it inconvenient for customers to do
> the latter. It's hard to see how this is useful, since it

Sure - and in economic terms this is known as 'price discrimination'.  Whilst
others on this list have alluded to this (seemingly in accident) and mentioned
tangentially that it enables production of goods which may be otherwise
unviable, it is worth exploring in depth.

The following url may be useful:

http://firstmonday.org/issues/issue2/different/index.html

"Pricing at marginal cost may or may not be efficient: it depends on how the
 consumers' total willingness-to-pay relates to the total cost of providing
 the good. To see this, consider the following simple example. Consumer A is
 willing to pay $10 for a single unit of a good, and consumer B is willing to
 pay $5. There is a zero marginal cost of producing multiple units of the
 good, but there is a fixed cost of $10. In this case, total benefits are $15
 and total costs are $10, so it is socially worthwhile to produce the good."

 "On the other hand, suppose that the fixed cost of producing the good were
 $20. In this case, the total benefits from producing the good are $15 and the
 total costs are $20. There is no way to allocate the good (and the cost of
 producing it) to the two consumers in a way that makes them both better off
 than they would be if the good were not produced at all.

 This is simply another way of illustrating the point made earlier: efficiency 
 requires that the marginal user face marginal cost, but making all users face
 a constant price equal to marginal cost can easily fail to be efficient. "

In fact, on this subject. I'm suprised that no one has mentioned the Andrew
Odlyzko paper, which explores price discrimination on the Internet, and
mentions in passing that it's likely to be the major factor in the pushing of
DRM schemes:

http://www.dtc.umn.edu/~odlyzko/doc/privacy.economics.pdf

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