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). 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]] rights ensure that production is artificially lowered in order for business to gain a monetary benefit, thus giving businesses an incentive to produce more software. [[Technocracy|Technocrats]] argue that if the [[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 exist. | + | 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). 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]] rights ensure that production is artificially lowered in order for a business to gain a monetary benefit, thus giving businesses an incentive to produce more software. [[Technocracy|Technocrats]] argue that if the [[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 exist. |
[[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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With computer software, no significant trade-off occurs. To produce more of a certain piece of digital information, since virtually no resources are used to copy the information there is no trade-off with the production of other things, like shoes and boots. In essence, problems of artificial scarcity usually arise when a good that was once scarce becomes abundant due to extreme increases in productivity and technology. <ref>[http://www.automation.com/sitepages/pid1698.php The Problems of Scarcity & Abundance]</ref> | With computer software, no significant trade-off occurs. To produce more of a certain piece of digital information, since virtually no resources are used to copy the information there is no trade-off with the production of other things, like shoes and boots. In essence, problems of artificial scarcity usually arise when a good that was once scarce becomes abundant due to extreme increases in productivity and technology. <ref>[http://www.automation.com/sitepages/pid1698.php The Problems of Scarcity & Abundance]</ref> | ||
| − | == | + | == Support for artificial scarcity == |
| − | In a market economic system, an abundance is not produced because excess product is considered an inefficient use of resources; those resources could be used elsewhere to produce something in greater demand to fulfill more wants. A paradox is reached with artificially scarce products, as an abundance is possible, yet without creating scarcity via legal or | + | In a market economic system, an abundance is not produced because excess product is considered an inefficient use of resources; those resources could be used elsewhere to produce something in greater demand to fulfill more wants. A paradox is reached with artificially scarce products, as an abundance is possible, yet without creating scarcity via legal or coercive means, there is minimal profitability for the creator (or the distributor) of the product. If scarcity is allowed to reach zero, the economic model is irrelevant. If natural scarcity no longer exists, scarcity has to be created to ensure a price system of supply and demand. <ref>[http://www.manageability.org/blog/stuff/artificial-scarcity/view Manageability- Artificial Scarcity]</ref> |
| − | == Economic | + | 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. |
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| + | == Economic actions that create artificial scarcity == | ||
* [[Price floor]] - This discourages access to a resource (creating scarcity and profits) and waste is produced. | * [[Price floor]] - This discourages access to a resource (creating scarcity and profits) and waste is produced. | ||
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* [[Cartels]] | * [[Cartels]] | ||
| − | These | + | These actions are used to artificially prevent [[market failure]], artificially preserve profits for producers, or artificially reduce costs for a certain group. |
== Responses to artificial scarcity == | == Responses to artificial scarcity == | ||
| − | The term 'artificial scarcity' is used by [[Technocracy Incorporated]] to point out one aspect of productive inefficiency in the [[Technocratic views of the Price system|price system]].<ref> http://www.technocracy.org/Archives/I%20Am%20The%20Price%20System-r.HTM I Am The Price System R. B. Langan 1944 Published in:Great Lakes Technocrat March/April 1944, No. 66</ref> Technocracy advocates predict that a technologically advanced state is capable of producing an abundance of consumer goods, depending on | + | The term 'artificial scarcity' is used by [[Technocracy Incorporated]] to point out one aspect of productive inefficiency in the [[Technocratic views of the Price system|price system]].<ref> http://www.technocracy.org/Archives/I%20Am%20The%20Price%20System-r.HTM I Am The Price System R. B. Langan 1944 Published in:Great Lakes Technocrat March/April 1944, No. 66</ref> Technocracy advocates predict that a technologically advanced state is capable of producing an abundance of consumer goods, depending on an areas resource base.<ref>http://ecen.com/eee9/ecoterme.htm Economy and Thermodynamics</ref> Technocrats point out empirical evidence; even though the productive capacity may exist to feed everyone in a given area, under-production, waste, or misallocation is used to enforce scarcity, because there is no way to sell an abundance. A conflict between economic coersion (forcefully maintaining a low supply) and scientific reality (natural abundance) stifles the possibility for abundance within the context of a given resource base and land area. A price system only creates opportunities for scarce products, whereas a method of [[Energy Accounting]] according to this idea, would make consumables available to all in a [[Technate]].<ref>http://www.eoearth.org/article/Biophysical_economics</ref> |
| − | + | In the absence of artificial scarcity, businesses and individuals would create software based on their own need (demand). For example, if a business had a strong need for a voice recognition program, they would pay to have the program developed to suit their needs. The business would profit not on the program, but the on the resulting boost in efficiency caused by the program. The subsequent abundance of the program would lower operating costs for the developer as well as other businesses using the new program. Lower costs for businesses result in lower prices in the competitive free market. Lower prices from suppliers would also raise profits for the original developer. In abundance, businesses would continue to pay to improve the program to best suit their own needs, and increase profits. Over time, the original business makes a return on investment, and the final consumer has access to a program that suits their needs better than any one program developer can predict. This is the common rationale behind [[open-source]] software, such as [[Mozilla Firefox]]. | |
== See also == | == See also == | ||