DeCSS, crypto, law, and economics

[Eric Rescorla]

William Allen Simpson <wsimpson at greendragon.com> writes:
[..] 
> Therefore, your graphs say to me: market segmentation is indicative of 
Of course. But the point that you seem to be missing is that there are
situations where a monopoly can Pareto-dominate non-monopoly situations.

> 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. 
Of course. Because it's far harder to explain the principle without
perfect information. That doesn't make it wrong, however.

> 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).
You're implicitly assuming some method of price discrimination (in
this case auctions). Without the ability to get one consumer to pay
more than another, we're back to the situation that we had before,
namely that it's unprofitable to produce the commodity. Most consumer
goods are not sold at auction and thus more subtle forms of price
discrimination are required.

Incidentally, it's not clear that an auction will produce the effect
you suggest. It's not necessarily your best strategy to bid up to
your true value on the first of a series of identical items.

-Ekr

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

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