Difference between revisions of "Artificial scarcity"
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'''Artificial scarcity''' describes the [[scarcity]] of items even though the technology and [[Economic production|production]] capacity exists to create an abundance. The term is aptly applied to non-rival resources, i.e. those that do not diminish due to one person's use, although there are other resources which could be categorized as artificially scarce. The most common causes are [[monopoly]] pricing structures, such as those enabled by [[intellectual property]] rights or by high fixed costs in a particular marketplace. The inefficiency associated with artificial scarcity is formally known as a [[deadweight loss]]. | '''Artificial scarcity''' describes the [[scarcity]] of items even though the technology and [[Economic production|production]] capacity exists to create an abundance. The term is aptly applied to non-rival resources, i.e. those that do not diminish due to one person's use, although there are other resources which could be categorized as artificially scarce. The most common causes are [[monopoly]] pricing structures, such as those enabled by [[intellectual property]] rights or by high fixed costs in a particular marketplace. The inefficiency associated with artificial scarcity is formally known as a [[deadweight loss]]. | ||
| − | An example of artificial scarcity is often used when describing [[proprietary software|proprietary]], or [[closed-source]], computer software. Any software application can be easily duplicated billions of times over for a relatively cheap production price (an initial investment in a computer, an internet connection, and any power consumption costs; and these are already [[fixed costs]] in most environments). On the margin, the price of copying software is next to nothing, costing only a small amount of power and a fraction of a second. Things like serial numbers, [[Software license agreement|license agreement]]s, and [[intellectual property]] create artificial scarcity, and give monetary value to otherwise free copies. [[Technocracy|Technocrats]] argue that if | + | An example of artificial scarcity is often used when describing [[proprietary software|proprietary]], or [[closed-source]], computer software. Any software application can be easily duplicated billions of times over for a relatively cheap production price (an initial investment in a computer, an internet connection, and any power consumption costs; and these are already [[fixed costs]] in most environments). On the margin, the price of copying software is next to nothing, costing only a small amount of power and a fraction of a second. Things like serial numbers, [[Software license agreement|license agreement]]s, and [[intellectual property]] create artificial scarcity, and give monetary value to otherwise free copies. [[Technocracy|Technocrats]] argue that if [[Technocratic views of the Price system|the price system]] were removed, there would be no personal [[incentive]] to artificially create scarcity in products, and thus something similar to the [[open source]] model of distribution would dominate. |
[[Image:Ppfofdigitalinformation.gif|thumb|right|485px|[[Production possibilities frontier]] of showing trade-off.]] | [[Image:Ppfofdigitalinformation.gif|thumb|right|485px|[[Production possibilities frontier]] of showing trade-off.]] | ||
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Artificial scarcities are said to be necessary to promote the development of goods. In the example of digital information, it may be free to copy information ad infinitum, but it requires a significant investment to develop the information in the first place. In the example of the drug industry, production of drugs is fairly cheap to execute on a large scale, but new drugs are very expensive. This is because the initial investment to develop a drug is generally billions of dollars, due to strict regulation. Typically drug companies have profit margins much higher than this initial investment, but the high payoff also attracts many companies to compete, increasing the pace of drug development. A feature of many economies is also time limit in patent rights; after a set number of years enjoying an artificial scarcity, the patent wears off and cheap generic versions of a product enter the market. Thus, the drug developer gets a return on investment, and other companies subsequently compete to lower prices. | Artificial scarcities are said to be necessary to promote the development of goods. In the example of digital information, it may be free to copy information ad infinitum, but it requires a significant investment to develop the information in the first place. In the example of the drug industry, production of drugs is fairly cheap to execute on a large scale, but new drugs are very expensive. This is because the initial investment to develop a drug is generally billions of dollars, due to strict regulation. Typically drug companies have profit margins much higher than this initial investment, but the high payoff also attracts many companies to compete, increasing the pace of drug development. A feature of many economies is also time limit in patent rights; after a set number of years enjoying an artificial scarcity, the patent wears off and cheap generic versions of a product enter the market. Thus, the drug developer gets a return on investment, and other companies subsequently compete to lower prices. | ||
| − | There have been plenty of examples however where the development of goods was present without artificial scarcity. Particularly with the [[free software movement]]. Free software like Firefox, Linux, and Audacity are all examples of new development without scarcity. Additionally, plenty of | + | There have been plenty of examples however where the development of goods was present without artificial scarcity. Particularly with the [[free software movement]]. Free software like Firefox, Linux, and Audacity are all examples of new development without scarcity. Additionally, plenty of copyrighted works have been created under the [[Creative Commons]]. Many works which have been created without scarcity can be watched for free on YouTube, or viewed on various blogs and websites. |
== Economic actions that create artificial scarcity == | == Economic actions that create artificial scarcity == | ||