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6.14.2004
Margin of Error
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To view webcast interviews with legendary economics Professors Ronald Coase and Lester Telser, go here.
The context: As noted before in this WebJournal, the notion that "economic efficiency requires" that prices "should" equal marginal cost is a treacherous one. It leads people into such logical traps as arguing that because intellectual creations can be distributed over the Internet at almost zero cost, we should abandon the market system for IP and support its production by some system of fees on hardware and/or connectivity, combined with zero-price distribution.
In fact, the idea that marginal cost pricing represents a desirable state of affairs, from the standpoint of either economics or ethics, is an academic affectation, with little relevance outside the classroom. It has no application to price-setting in investment-heavy industries, a category which, in the modern economy, encompasses practically everything.
It most emphatically has no relevance to creative products, where producing the first copy of a movie, song, book, program, game, or drug may cost hundreds of millions of dollars, while producing each subsequent copy costs only pennies.
In this real world, producers must avoid the death spiral of marginal cost pricing, and must direct considerable ingenuity to this end, through bundling, differential pricing, varying product composition, and other devices. The danger is that government regulatory and antitrust authorities, or judges, caught up in the myth of marginal cost, will interfere with these necessary and benign efforts to accommodate reality.
On May 6/7, 2004, the Competitive Enterprise Institute, with the help of PFF, sponsored a Workshop on Declining Marginal Cost Industries in the Global Information Age. The Keynote was delivered by Professor Vernon Smith, the Nobel Prize economist from George Mason University. Professors Coase and Telser, both of the University of Chicago, provided videotaped interviews. Panels examined Digital Property (chaired by James DeLong of PFF), Network Industries, Transportation, and Pharmaceuticals.
The agenda, list of panelists, and references list are available, together with the webcasts of the interviews with Professors Coase and Telser. A transcript will be available soon.
posted by James DeLong : 6/14/2004 01:10:02 PM
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