Difference between revisions of "Artificial scarcity"

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(Reference added regarding Tech Dirt mention of artificial scarcity.)
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'''Artificial scarcity'''<ref>Tech Dirt describes "artificial scarcity" in an article published on 23rd Feb 2012, retrieved 30th August 2013: http://www.techdirt.com/blog/innovation/articles/20120116/22095317427/real-scarcity-is-important-part-business-model-artificial-scarcity-is-terrible-business-model.shtml - archived here: http://archive.is/xqBMz</ref> 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]].
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[[category:economics]]
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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.
  
== Criticism ==
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For more in-depth discussion of these contexts, see:
One critic has stated artificial scarcity cannot exist. "Scarcity cannot be created, it can only be enhanced."<ref>Article via H+ Magazine retrieved 30th August 2013, http://hplusmagazine.com/2013/04/09/governments-money-capitalism-scarcity-and-stupidity/ - archived here: http://archive.is/i1mmG</ref>
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* [[/rival]]
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* [[/non-rival]]
  
{{quotation|The artificial scarcity is tantamount to thinking you can create artificial coldness via adding one ice-cube to the Sun.|[http://hplusmagazine.com/2013/04/09/governments-money-capitalism-scarcity-and-stupidity/ H+ Magazine 9th April 2013]}}
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The inefficiency associated with artificial scarcity is formally known as a [[deadweight loss]].
  
== See also ==
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==Causes==
{{Portal|Economics}}
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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>.
*[[Post-scarcity economy|Post-Scarcity]]
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*[[Disney Vault]]
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The argument goes as follows:
*[[Criticism of intellectual property]]
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* Producers are primarily motivated by profit &ndash; not to satisfy wants or needs, or even to provide [[economic value]].
*[[Club good]]
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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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==Mechanisms==
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Common mechanisms for creating or enforcing such scarcity include:
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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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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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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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==Related==
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* {{wp/alt|Club good}}
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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}}
  
 
==References==
 
==References==
{{Reflist}}
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<references/>
 
 
{{DEFAULTSORT:Artificial Scarcity}}
 
[[Category:Scarcity]]
 
[[Category:Information economics]]
 

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