Difference between revisions of "Artificial scarcity"

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'''Artificial scarcity''' is an [[economics|economic]] term describing the [[scarcity]] of items even though the technology and [[Economic production|production]] capacity exists to create an abundance.    Artificial scarcity occurs when the price of goods rises above their [[marginal cost]].  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]].
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<hide>
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[[page type::article]]
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[[thing type::phenomenon]]
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[[thing type::tool]]
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[[category:economics]]
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</hide>
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==About==
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[[Artificial scarcity]] refers to situations in which [[scarcity]] is deliberately created, most commonly in response to a perceived business need. The term is applied to both [[rival goods]] and [[non-rival goods]], but the significance and mechanisms are somewhat different in each case.
  
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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, license agreements, and [[intellectual property]] rights ensure that production is artificially lowered in order for business to gain a monetary benefit, thus giving those in the software and digital arts business their livelihood.  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 distributions would exist.
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For more in-depth discussion of these contexts, see:
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* [[/rival]]
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* [[/non-rival]]
  
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[[Image:Ppfofdigitalinformation.gif|thumb|right|485px|[[Production possibilities frontier]] of showing trade-off.]]
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The inefficiency associated with artificial scarcity is formally known as a [[deadweight loss]].
  
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Most economists stress the trade-off that occurs when producing goods. The graphic shows the economic anomaly, as current economics deals only with allocating scarce resources, not abundant ones. If we want more leather boots, we'll have to give up producing running shoes because our resources are limited. This trade-off is illustrated by a move from P1 to P2 in the Production Possibilities graph on the left.
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==Causes==
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One argument is that this arrangement has come about because [[capitalism]] and the [[profit]] motive create a situation where it is easier to profit from creating scarcity than from meeting unmet needs<ref name=ws1>http://www.worldsocialism.org/spgb/apr98/scarcity.html Artificial scarcity</ref>.
  
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With computer software, no trade-off occurs (at least not one of significant value). To produce more of a certain piece of digital information, we need not to trade-off 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 productivity and technologic progress.[http://www.automation.com/sitepages/pid1698.php]
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The argument goes as follows:
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* Producers are primarily motivated by profit &ndash; not to satisfy wants or needs, or even to provide [[economic value]].
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* Profit is maximized by satisfying [[effective demand]] through selling at the highest possible price.
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* When all needs are met, effective demand is low.
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* When effective demand is low, prices are also low (due to the law of [[supply and demand]]).
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* Therefore: profit can be increased by artificially limiting availability (through any of several mechanisms), thereby increasing effective demand.
  
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== The need for artificial scarcity ==
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==Mechanisms==
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Common mechanisms for creating or enforcing such scarcity include:
  
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Price system economics requires that profit has to be made for every activity performed. Demand has to exceed supply in order for a profit to be made. If scarcity is allowed to reach zero, the economic model fails. If natural scarcity no longer exists scarcity has to be created to ensure function of the system.[http://www.manageability.org/blog/stuff/artificial-scarcity/view]
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* {{wp/alt|monopoly}} pricing structures, such as those enabled by [[intellectual property]] rights or by high fixed costs in a particular marketplace.
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* {{wp/alt|cartel|cartels}}
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* {{wp/alt|guild|guilds}}
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* [[copyright]] - Grants authors a limited monopoly to copy and distribute their works.
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* Hoarding by traders and middlemen
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* Black market activities
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* Insider trading
  
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== Economic tools to promote artificial scarcity ==
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All these activities are beneficial for the producer who gets a high profit margin by increasing prices due to deficiency in the supply of goods. Ultimately it is the final consumer who bears the burden of not being able to obtain the amount of goods he requires and also being unable to get them at a reasonable price.
  
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* [[Price floor]] - This discourages access to a resource (creating scarcity and profits) and waste is produced.
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These actions are used to artificially prevent [[market failure]], artificially preserve profits for producers, or artificially reduce costs for a certain group. A state of complete abundance will crash any [[market economy]].
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* [[Price ceiling]] - Discourages production while encouraging consumpution of a resource (two way creation of scarcity).
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==Related==
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* [[Subsidies]], which may be subsidies to production (usually creating surpluses) or subsidies to consumption (usually creating shortages).
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* {{wp/alt|Club good}}
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* [[Cartels]]
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* {{wp/alt|Criticism of intellectual property}}
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* {{wp/alt|Disney Vault}}
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* {{wp/alt|Post-scarcity economy}}
  
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Reasons that these tools are used is to prevent [[market failure]], preserve profits for producers, or reducing costs for a certain group.
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==References==
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<references/>
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== Responses to artificial scarcity ==
 
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* The term is used by the [[Technocratic movement]][http://www.technocracy.ca/simp/glossary.htm] to point out one flaw of productive inefficiency in the [[Technocratic views of the Price system|price system]] and takes the above example of digital information in microcosm.  The movement claims that a technologically advanced state is capable of producing an abundance of virtually everything.  Technocrats point out empirical evidence; even though the productive capacity exists to feed everyone in the world, we underproduce, we throw away, or we misallocate because there is no way to sell an abundance.  They state that a conflict between scientific reality and economic tradition stifles the possibility for abundance.  A price system only creates opportunities for scarce products.
 
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** [http://www.technocracy.ca/modules.php?op=modload&name=Sections&file=index&req=viewarticle&artid=15&page=1 Article explaining technocratic beliefs of current economy]
 
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== See also ==
 
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*[[Scarcity]]
 
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*[[Post scarcity]]
 
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*[[Technocratic views of the Price system]]
 
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[[Category:Technocracy movement]]
 
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[[Category:Scarcity]]
 
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== External links ==
 
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[http://www.usemod.com/cgi-bin/mb.pl?ZeroSumGame Zero Sum Game]
 

Latest revision as of 20:04, 27 December 2013

About

Artificial scarcity refers to situations in which scarcity is deliberately created, most commonly in response to a perceived business need. The term is applied to both rival goods and non-rival goods, but the significance and mechanisms are somewhat different in each case.

For more in-depth discussion of these contexts, see:

The inefficiency associated with artificial scarcity is formally known as a deadweight loss.

Causes

One argument is that this arrangement has come about because capitalism and the profit motive create a situation where it is easier to profit from creating scarcity than from meeting unmet needs[1].

The argument goes as follows:

  • Producers are primarily motivated by profit – not to satisfy wants or needs, or even to provide economic value.
  • Profit is maximized by satisfying effective demand through selling at the highest possible price.
  • When all needs are met, effective demand is low.
  • When effective demand is low, prices are also low (due to the law of supply and demand).
  • Therefore: profit can be increased by artificially limiting availability (through any of several mechanisms), thereby increasing effective demand.

Mechanisms

Common mechanisms for creating or enforcing such scarcity include:

  • monopoly [W] pricing structures, such as those enabled by intellectual property rights or by high fixed costs in a particular marketplace.
  • cartels [W]
  • guilds [W]
  • copyright - Grants authors a limited monopoly to copy and distribute their works.
  • Hoarding by traders and middlemen
  • Black market activities
  • Insider trading

All these activities are beneficial for the producer who gets a high profit margin by increasing prices due to deficiency in the supply of goods. Ultimately it is the final consumer who bears the burden of not being able to obtain the amount of goods he requires and also being unable to get them at a reasonable price.

These actions are used to artificially prevent market failure, artificially preserve profits for producers, or artificially reduce costs for a certain group. A state of complete abundance will crash any market economy.

Related

References

  1. ↑ http://www.worldsocialism.org/spgb/apr98/scarcity.html Artificial scarcity
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