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Second Enclosures

The ongoing private appropriation of information has been unfavorably compared to the enclosures of the 16th century and some even called it a virtual land-grab. More and more creative works, and more kinds of works (first just books, then music, now also software) are being appropriated. And not just new, but also old themes that are part of our cultural heritage are being enclosed (such as 'Pinokkio' and 'Snow White and the Seven Dwarfs'). But it doesn't stop there: Plant-species that have been used for generations, and even our own genes, especially those related to diseases such as cancer, are being patented and locked away for profit in the US (by Myriad Genetics and Monsanto among others). The terms of copyrights are also being extended; starting at 14 years, then 28, life + 50, they now are the life of the author + 70 years, and these extensions happened retro-actively, that is for authors long dead, as if it could stimulate their creativity again.

In short: Information is being forced into the straight-jacket of the market for physical goods, and being enclosed to protect investments, in the hope for similar results as for land in the 16th century. But is this a fit ? Markets are good for three reasons: First of all they allow for decentralized decision-making. That is people can - each for themselves - decide what is good for them, like which music they like. Secondly they allow for efficient investments. That is people are most often right about which investments are good ones, such as what movie productions to invest in. Thirdly it allows for efficient use. That is resources and products are not being wasted, because they cost money. But for digital goods this last part doesn't make sense, as copying can be done for free, so no resources can be wasted.

The issue of efficient use is also directly related to what economists call deadweight loss. Deadweight loss occurs when people who could have used a product if it were sold at piece-wise production-cost, cannot, because its price is kept artificially high. For example if someone sells bricks at 50 cents while piece-wise production costs (including wages and management) are 20 cents, then the people to whom bricks bring a marginal benefit of between 20 and 50 cents would not be able to buy them if they are priced at 50. It is a loss to consumers, as they can't have the product, but also a loss to the producers, as it represents a sale they never make. Now because for virtual goods there are no marginal costs once a single copy is created, there will always be a large (theoretically an infinite) deadweight loss. In the following figure (figure) the deadweight loss for virtual goods is the bottom-right corner}.

In a study it was found that while for typical students their spending on CD's went down with 25$ (from 126$ to 101$), their deadweight loss (as measured by how they value their downloads) went down with 45$, for a total consumer surplus of 70$ (25 + 45). In other words: a maximum 25$ of sales was displaced, while the students gained 45$ in music which they would never have bought at market-prices, and which are thus no lost sales. To summarise: music is being shared that would never have been bought, and that neither replaces the buying of other CD's. This leads to a growth in welfare that is hard to criticise.

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