Thursday, May 3, 2012
Econ 101: Speaking of Monopoly
Here's a video of the TED talk by Rob Reid, founder of the company that created the Rhapsody music service. Reid makes some interesting and funny points, in describing the exciting new field of "copyright math," to destroy the economic arguments of the advocates of intellectual property in music and video (primarily the MPAA and the RIAA, the movie and music industry associations that were such boosters of the SOPA/PIPA legislation).
Those of you coming to this page because you're in my micro class will no doubt recognize the simple economic mistakes he makes. These don't negate the basic point he's making: that industry claims about losses resulting from piracy are wildly inflated and/or come from shaky reasoning if not thin air.
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3 comments:
One mistake is he refers to economic losses as a pure money value, when in fact the term also accounts for opportunity cost.
Nathan Reece
I don't know how it is applicable to the concept of monopoly (since I missed the class last week) but when Reid talked about identifying the actual economic loss due to copyright theft, he said that the loss does not occur in movie and other media and entertainment industry, except music industry, because these industries have increased revenue over the years. Therefore he concluded that these industries do not incur loss. In terms of accounting profit, this may be the case. However, if the businesses include the opportunity cost, or the profit that they could have derived from the customers now using pirated goods, they suffer economic loss. Economic profit/loss not only includes accounting profit but also the opportunity cost. Reid (kind of) explained that the "it is not additional growth that piracy has prevented" because the industries have been growing according to the norm over the years, which does not justify the fact that the media industry is losing the potential benefit and customers to the cheaper pirated goods. However, the argument can be made that the customers who use the cheaper goods might not have been able to afford the real goods anyway even if the pirated goods do not exist. It is hard to know what portion of the customers using pirated goods can actually afford the real goods or not. However, it only scales down the economic loss incurred due to piracy but it cannot negate the loss altogether. Moreover, since the price of the (pirated) goods is below the market equilibrium price, the suppliers would have to bear the dead weight loss due to the artificial price line.
One mistake is that this industry of copy right is a monopoly and thus they are price makers . Since this industry is a monopoly it can charge prices they want, and he doesn't mention this factor to explain why there is so much economic losses that is equivalent to whole American corn+fruit+etc which is a huge mistake and misleading notion.
Yusung Eo
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