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 [[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.{{ | + | 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.{{Citation needed|date=July 2011}} |
[[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 nearly all goods, a trade-off occurs when decisions are made about production. The graph shows the economic anomaly that occurs with artificially scarce products. Because leather boots consume resources, a trade-off is noticed between running shoes and boots; i.e. in order to produce more boots one has to produce fewer running shoes because of limited resources. This trade-off is illustrated by a move from P1 to P2 in the Production Possibilities graph on the left. | With nearly all goods, a trade-off occurs when decisions are made about production. The graph shows the economic anomaly that occurs with artificially scarce products. Because leather boots consume resources, a trade-off is noticed between running shoes and boots; i.e. in order to produce more boots one has to produce fewer running shoes because of limited resources. This trade-off is illustrated by a move from P1 to P2 in the Production Possibilities graph on the left. | ||
| − | 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> | + | 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>{{cite web |url=http://www.automation.com/resources-tools/articles-white-papers/articles-by-jim-pinto/the-problems-of-scarcity-abundance |title=The Problems of Scarcity & Abundance |publisher=Automation.com}}</ref> |
| − | {{quote|If you have an apple and I have an apple and we exchange apples then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.| | + | {{quote|If you have an apple and I have an apple and we exchange apples then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.|Phi Kappa Phi Journal<ref>{{cite book |url=}}</ref>}} |
== Support for artificial scarcity == | == 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 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> | + | 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>{{cite web |url=http://www.manageability.org/blog/stuff/artificial-scarcity/view |title=Artificial Scarcity, Garbage Collection and the Long Tail |publisher=Manageability}}</ref> |
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 {{Citation needed|date=November 2010}}. 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 {{Citation needed|date=November 2010}}. 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. | ||