DeCSS, crypto, law, and economics

[Eric Rescorla]

William Allen Simpson <wsimpson at greendragon.com> writes:

> Eric Rescorla wrote:
> > 
> > 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.
> > 
> The points I was making here are (1) the terms used were wrong and (2) 
> there were no net benefits (wealth) to "society" from the monopoly.
But that's wrong, because the monopoly allows market segmentation,
which allows new products to be introduced that otherwise would
not be.

> > > 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.
> > 
> It is wrong, since it doesn't have any correspondence to the case at hand 
> (DVDs, cryptography).  In fact, it is directly contrary: (1) the producers 
> are not omniscient, and (2) the consumers have knowledge about pricing, 
> and (3) neither the producers nor the consumers act rationally.
>
> We can speculate forever about universes where we travel faster than the 
> speed of light, but really, I don't see why we should bother with using 
> such universes to model our current discussion. 
Maybe you live in some alternate universe where companies don't
to practice price discrimination, but here on planet Earth,
companies routinely offer products at widely variable prices
to different consumers.

> > 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.
> > 
> What you mean is FORCE the consumers to pay more than one another,
> when everyone knows it a priori to be irrational. 
I'm not sure what you mean is irrational.

(1) It's not irrational to pay a different price from other people.
    On the contrary, if the price isn't available to you for some
    reason, it's absolutely rational.
(2) As stated many times, it IS rational to force people to pay
    different prices. I advise you to go back and read Varian's
    papers. Moreover, it's done all the time with things like
    educational discounts, senior citizens discounts, etc.

> The question raised was whether the commodity would be produced.  The 
> producer knows that in the PAST there was sufficient income from these 
> consumers for the goods to be profitable. 
>
> The producer is not pre-cognitive.  In the case at hand, producers know 
> that some movies/theatricals simply never make a profit, no matter how 
> wonderful.  That's risk.
Of course, but the producer uses things like past experience and
marketing studies to decide what they expect. There may be errors,
but that doesn't invalidate the basic analysis, which is that if
the producer doesn't EXPECT to make a profit they won't produce
a product.

-Ekr

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

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