DeCSS, crypto, law, and economics

[Karsten M. Self]

on Tue, Jan 07, 2003 at 04:10:27PM -0800, Eric Rescorla (ekr at rtfm.com) wrote:
> Pete Chown <Pete.Chown at skygate.co.uk> writes:

> The interesting thing about market segmentation (as Mr. Denker pointed
> out) is that it's often good for everyone, particularly in cases
> where marginal costs of production are low. 
> 
> Consider the following simple case:
>         A a publisher is deciding to publish some book X. The marginal
>         cost of production is zero but it costs $7 to do the initial
>         setup (writing, typesetting, etc.)
> 
>         There are only two possible customers for this book. One of
>         these customers is willing to pay 6 for the book and the other
>         3.
> 
>         There is no uniform price at which this book can be sold that
>         doesn't result in the publisher losing money. If he charges 6,
>         he will sell one copy and be out a dollar. If he charges 3 he
>         sells two copies but is still out a dollar. Under these
>         conditions, the book will not be produced.
> 
>         However, if he can price discriminate, he can sell two copies,
>         one at 3 and one at 6. This makes it profitable for him to
>         produce the book.

...and the usual mechanism is to produce various versions of the book:

  - A premium hardcover.
  - A "trade paperback".
  - A pulp paperback.
  - A premeium, leather-bound, acid-free archival quality, hand-signed,
    and specially illustrated, collectors edition.

...the price discrimination here plays on a number of factors, including
timing (HC and TC are generally released in that sequence, with 6-12
months between, pulp paperback isn't released for 12-18 months following
publication).  The different products also appeal to taste and vanity by
quality (or at least appearance) of the work.

What's distinctive about the last several years of RIAA[1] and MPAA
actions is that these industries are seekin legal sanction to enforce
price discrimination.  The basis for this legal sanction isn't
production-side differences, but an attempt to manage the demand-side
differntials which exist.

This is fundamentally different from import duties charged, say, on
account of labor, production, or environmental differences between
production methods (and costs) on industrial goods.  Here I _do_ see a
fair basis for making the distinction, if a market is to fairly value
environmental externalites.

Where I see a fundamental conflict on the two classic cypherpunk issues
of free access to data, but protection of privacy, is this:

  - Much of the fair use / DRM industry activity seeks to limit
    access to data which is inherently public.

  - Much of the privacy debate (now wrapped in the mantel of national
    security, though marketing data still plays a major role) seeks to
    make public data which is inherently private, anonymous, or both.

I see the traditional cypherpunks line in both cases as being more
closely aligned with "natural state" -- how things would be without
major intervention -- and thus more sympathetic.


> Hal Varian has a very readable exposition of this topic
> (from which I got this example) at:
> http://www.sims.berkeley.edu/~hal/Papers/price-info-goods.pdf

If an economist can be a rock star, Varian is one of 'em.  His site, and
the book _Information Rules_ (see his website or
http://www.inforules.com/) are very highly recommended.  I suspect most
folks here are already familiar with them.

Peace.

--------------------
Notes:

  1.  a transparent mask for Sony (Japan), EMI (England), Warner, BMG
      (Germany), Universal (France), the so-called American recording
      industry, to hide behind.

-- 
Karsten M. Self <kmself at ix.netcom.com>        http://kmself.home.netcom.com/
 What Part of "Gestalt" don't you understand?
   Geek for hire:  http://kmself.home.netcom.com/resume.html

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