DeCSS, crypto, law, and economics

Eric Rescorla ekr at rtfm.com
Tue Jan 7 19:10:27 EST 2003


Pete Chown <Pete.Chown at skygate.co.uk> writes:

> John S. Denker wrote:
> 
> > Note that in the absence of market segmentation,
> > the society as a whole is worse off.
> 
> I see what you mean, but do you think it applies to DVDs?  The
> segmentation needs to be in each market, between rich and poor
> consumers.  What we actually have is segmentation between markets, say
> Europe and the US.
No, this isn't true. Say that Americans are willing to pay 50% more
for DVDs than Europeans. It would make sense for producers to attempt
to segment the market.

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.

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

> > There are two not-quite-separate sensible questions:
> >  -- Find a way to maximize the created wealth.
> >  -- Decide how to divvy up the created wealth among
> > the various stakeholders:  inventors, authors, performers,
> > publishers, manufacturers, wholesalers, retailers,
> > consumers, et cetera.
> 
> Would you rather maximise wealth or maximise competition?  It sounds
> like a silly question, but suppose the technology and legal framework
> required to support your solution prevented the use of open source.
> In that case, I would rather maximise competition.  In any case, it
> might be that this would maximise wealth in the long term, by
> increasing technological innovation.

I don't speak for Mr. Denker, but the point I think is relevant here
is that there are a fair number of situations in which removal of
some freedom would result in a superior situation for everyone
(Pareto-dominant). I'm not convinced that maximising freedom
is the best approach in all such cases.

-Ekr


-- 
[Eric Rescorla                                   ekr at rtfm.com]
                http://www.rtfm.com/

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