View Full Version : Effects of Black Market/Pirating on the Economy...
04-04-2008, 06:46 AM
I am not well-studied in economics. I am curious, though, as to the longterm effects (pirating/the black market) might have on the entertainment industry, and thus the economy as a whole?
04-04-2008, 07:16 AM
The pirating of media and the subsequent 'black market' is an outgrowth of the overpriced and increasingly restrictive policies set forth by the media companies. In fact, this is a perfect example of free market enterprise at work.
Currently, there is no competition amongst the various media giants. If I want to purchase a DVD from Sony it is the same price as a DVD from Warner Bros. which is the same price as a DVD from New Line etc etc etc. Coupled with the increase in DRM, which media executives would like to see force you to purchase a different copy of the same item for each media player you have. Want to watch a movie on your TV? That is a purchase. Want to view it on your iPod? There is another purchase. Want to view it on your computer? Still yet, another purchase. There is no competition, because each media conglomerate is negotiating with the other to set prices. Some would say this is a cartel, but I would call it something else.
Now, there is apparently a segment of the population that is uninterested in purchasing DVDs at their currently inflated prices. $20 seems a bit much (not to mention the $25 - $35 range for 'special editions') for what is essentially nothing more than a small sliver of plastic with some data. It is incredibly cheap to produce DVDs and CDs, practically a few cents. Yet the cost is staggering compared to how much the media costs. Therefore, to accommodate the wants of the population that does not wish to pay these prices, pirating and the black market have emerged to fill this need. In short, the people that are actively engaging in piracy are not going to be buying the media anyways. They are a lost demographic and therefore not going to affect the economy in either way. You cannot attribute sales lost to a group that would be unwilling to purchase your product in the first place.
04-04-2008, 07:19 AM
Well, a blackmarket is produced whenever the price is set higher than the market's optimum price
That is a graph of the basic market. The vertical axis is price, the horizontal axis is quantity, the line with the negative slop is demand and the line with the positive slope is supply.
The optimum price/quantity point is where the supply and demand lines intersect. If you set the price higher then the price line intersects the supply and demand lines above the optimum price and the two lines that drop down to the quantity axis begin to spread apart. The difference is the black market. Because you raised the price you are inducing greater supply that is not accounted for by demand. The artificially high price encourages people to sell that thing illegally because it is profitable.
Long-term any price other than the optimum market price creates inefficiency, which tends to waste resources and drag down the market. I think the entertainment industry will eventually figure out that to make a profit they have to charge what people are willing to pay. I think the biggest hurdle right now is technological; back when music had to be distributed on CDs there was a certain minimum cost associated with manufacturing and distributing them. As music becomes more digital that minimum cost disappears and the market won't bear the same price. They might adapt, or they might ignore the need for change and be replaced by someone else.
04-06-2008, 03:46 AM
I agree that most media is way overpriced. As a rule, in a free-market the (inflation adjusted) cost of a commodity will go down over time. Per unit, media has gotten cheaper and cheaper to produce, however the prices just keep going up. Movies don't cost significantly more to make than they did 10 or 15 years ago, but they have a much larger theoretical audience. Nobody wants to go to the theatre anymore, it costs too much. People can download it illegally for free and with a nice entertainment system get almost as good an experience at home with less inconvenience. If the costs were set by the market (cheaper), they would see more sales and consequentially receive more profits. By overcharging, these companies are driving away a huge set of potential customers.
It is not a free market though. Every product is copyrighted for 100 years so you only have a single seller of the product. The unknowns will license their works cheaply in order to get an audience. Once they have that audience they will raise prices to profit from it. The big companies are able to set standard prices to prevent competition between artists on price.
Its a quaint idea that people will pay for a disk of music where the tracks are selected by someone else. These days people work on a per song basis and burn their own disks. The number of customers is not the main issue. You make just as much as selling 1 for $20 as 2 for $10. The main advantage of lower prices is that the work is its own advertisement. If people here others playing it, they like it and go buy themselves.
The idea of intellectual property rights is understandable with drug development where it takes huge sums of cash and many years of testing to bring a product to market. Innovation wouldn't happen without protection. However copyright is even stronger protection. I feel that the artists have not invested much to produce their songs and that they would still happen even without any protection. The movie industry however does spend a lot of cash and time on each production meaning they need to get that back.
04-06-2008, 05:07 AM
The movie industry however does spend a lot of cash and time on each production meaning they need to get that back.
Yes they do. I like having original discs, so I don't burn movies. But for millions out there, it is easier/more cost effective to do that and the potential risks of getting caught are low if you aren't making a buck off of it. If prices were lower, people would be less likely to steal and more likely to buy, therefore they would actually make a larger profit off of larger sales.
Well most of a movies sales come in the first year after release. Once direct sales vanish, the stores no longer hold it, it may be licensed to TV companies for further cash. So you can get to view it eventually, but you have to wait for the TV companies to air it.
You could reduce copyright for them to 5 years, the only cash they are making at this time is repeats on TV and private collectors with retro collections. It seems absurd that every movie ever made is still covered by copyright.
I get particularly annoyed by the patents in the software business. These are things that any competent programmer would develop independently with ease. Yet some guy registers his patent first and demands cash. This stifles innovation rather then encourages it. The patent on the idea of a flashing cursor is silly to me. Every programmer may wish to make the cursor flash, and could program it. Yet some guy demands cash if you do so. It is not protecting innovation, it is a land grab.
04-06-2008, 04:33 PM
Property rights don't have much to do with PROTECTING innovation. They are aimed at ENCOURAGING innovation. The system is set up so that if you are the first person to think of something new you have a chance to get rich off of selling it. That encourages people to come up with new things because the payoff is greater than coming up with a copy of something that was already invented.
I'm not sure this was intended, but a very real outcome of this system is that the person who can invent something is seldom capable of profiting off of it. The mind it takes to invent something new is not the mind it takes to push a product to market and make it profitable. That results in a stratification of work. Those who invent usually just invent and those who sell usually just sell. By having each person specialize the market is more efficient.
04-07-2008, 10:25 AM
I think the effects of piracy may be different for each industry. The music is a disgusting monopoly of power, and the movie industry has an oppressive guild system that feels more like some kind of monarchy, complete with wicked nobles. blah. They'll sink or swim based on their ability to adapt to what the market wants.
The video game industry, however, is the newest and most innocent of these and isn't faring very well in the wake of piracy. A very large amount of that $60 we pay for a 360 or PS3 game goes to agencies that are not the actual developers. In fact, the price we pay is depressingly fair, and so when a companies game is pirated it's a big deal for them. So many fledgling companies have been shutting their doors quickly due to rampant piracy, and long standing companies tend to stay away from the PC platform for the same reason.
More than long term ramifications, I'd like to find reasonable methods in thwarting piracy, or otherwise help expand new business~
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