DeCSS, crypto, law, and economics

[William Allen Simpson]

I've been composing this reply for days, and the thread just keeps 
getting longer, so I'll try to keep the response concise, and consolidate 
in a single message.

Before it gets lost in the shuffle, I do want to thank John Gilmore for 
actual technical crypto information!  I had no idea that they were 
selling DVD blanks with the key areas unusable.  That has a profound 
effect on the whole debate, as it limits producer competition. 


"John S. Denker" wrote:
> The "created wealth" is given by the length of the
> magenta line, the difference between the customer-value
> curve and the producer-cost curve.
> 
This starts the thread, and the labels (and concepts) are wrong.  

It's been a long time since college, but even I can look up Adam Smith, 
chapter VII.

The "wealth" created is only that based on the original new things, 
and valued at the "natural" price.  Your graph shows a TRANSFER of wealth
(meaning monopoly profits), as the consumer price rises.  

Stradivarius violins are thousands of times more expensive than they 
were a mere decade ago -- because of scarcity and extremely rare sales, 
not an increase in overall wealth they bring to society. 

> Note that in the absence of market segmentation,
> the society as a whole is worse off.  ...  If the
> buyers insist on buying every unit at the lowest
> possible price, society loses.
> 
Not so!  As long as the price is greater than the cost (far far left of 
your tick mark), there is no reason that the goods cannot be produced 
FOREVER.  Society benefits FOREVER.  What you have indicated is where 
the *seller* maximizes gains, not where society maximizes gains.  That is the optimum profits, not the optimum wealth.  

Rather, the optimum wealth will be created by the lowest possible price, 
as more consumers will be able to afford the commodity and more of the 
commodity will be produced!

(Remember Henry Ford paying his workers enough to actually buy the cars 
they built, a novel concept at the time, setting off a transportation 
revolution.)

Therefore, your graphs say to me: market segmentation is indicative of 
monopoly rents. 


Eric Rescorla wrote:
> 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.
>... 
>         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.
> 
The problem with this example, as is often the case with economists, is 
it assumes perfect knowledge and rational behaviour. 

In real life, all the publisher knows at the time of decision is that in 
the PAST, there have been similar books that have sold for $6 and $3, and 
that there are at least 2 purchasers.  Therefore, the $7 costs of 
printing will be covered, and the book will be produced.  

All the rest of the rationale is hogwash.  Instead, at auction, the low 
cost consumer will quit at $4 on the 1st book (the other purchaser will 
have a bargain believing the book to be worth $6), and then purchase the 
2nd at $3.  Wealth will be maximized (and profit will be minimized).


Ian Brown wrote:
> .... But I would like to think that the popular skepticism towards
> price discrimination also reflects something much more rational. 
>...
> what is good for the company will also be good for the nation, 
>...
> http://law.vanderbilt.edu/lawreview/vol536/boyle.pdf
> 
Ah yes, the old "What is good for General Motors is good for the Country" 
argument.  Thanks for bringing this paper to our attention.


"Karsten M. Self" wrote:
> 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.
> 
As my (former) congresscritter says, "Using the DMCA, they want to control 
the room you're in, the chair you sit in, and the lamp you use."


> If an economist can be a rock star, Varian is one of 'em. 

Ahem, I beg to differ.  I haven't forgotten the foolish papers he wrote 
on Internet pricing, (bringing us back to our topic) cryptographically 
signing every packet, and carrying an additional micro-payment payload, 
so that they could "bid" at every router. 

As I pointed out at the time, the functional equivalent of every little 
passenger vehicle dragging along a train of boxcars, just to pay tolls. 
Thoroughly impractical. 

BTW, while researching his articles on the topic, I discovered that he'd 
been peddling the same papers to multiple journals (slightly modified)  
and padding his C.V.  Not intellectually honest, either.


Phil Karn wrote:
> Much movie piracy is driven by the strange practice of releasing new
> movies in different countries at different times. This is a major form
> of geographic market segmentation. If "Two Towers" had been released
>...
Have we forgotten that Jackson was turned down by many studios, before
he was allowed to make this magnificent (and profitable) film?

Then, when it was shown to be profitable, the larger studio BOUGHT the 
smaller ones!  Very like M$.  Very like a monopoly (or oligopoly).


Birger Toedtmann wrote:
> David Turner schrieb am Wed, Jan 08, 2003 at 01:29:39PM -0500:
> > On Wed, 2003-01-08 at 05:50, Pete Chown wrote:
> > > With DVDs we have a complex situation.  Supposedly studios can make more
> > > per film, so they can afford to make more marginal films.
> >
> > To make films which will not make money is not an economically rational
> > action even if one is making other films which do make money. This is
> > the point the 17 economists made in their Eldred amicus.
> 
> It depends.  In not-so-simple-scenarios, one may use it on behalf of
> PR (attracting people to one's product portfolio) or bind a promising
> new director who will later create a big profit-making film.  Studios
> and publishers use the latter quite frequently I guess.
> 
I've seen no evidence that higher profits result in any increase in studio 
productivity, or production of marginal profit, quality films.  Instead, 
those are usually produced as "indies". 

I've seen several cases where an ALREADY established profitable director 
will insist on doing a marginal film as part of a continuing contract. 


> If a product is definitely beyond any profit, it won't get produced
> by market forces, thus resulting in a pure common good.  Society may
> then agree upon whether it wants that good to be produced anyway,
> paying it with taxes, presumably.  You can see this with theatre,
> arts, opera etc.  This is "economically rational" as well but works
> outside markets only.  Don't mix rationality and market forces.
> 
Let us not forget that the most highly paid woman in the UK was given 
her start just a few years ago by a grant from the Scottish Arts Council, 
for a book nobody else would fund.  (Rowling and "Harry Potter")

Let us not forget that our beloved Internet (or more accurately its NSFnet 
predecessor) was funded by grants from the US government and the State of 
Michigan.  The "market forces" were pushing OSI and monopoly control.
-- 
William Allen Simpson
    Key fingerprint =  17 40 5E 67 15 6F 31 26  DD 0D B9 9B 6A 15 2C 32


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