Hmmm...and the more I think about it the less convinced I am that that is the right functional form for the cost function in that is suggests that as more and more movies are distributed marginal costs get lower and lower suggesting there is no limit to bandwidth and storage space...a dubious assumption.

And yet it is a correct assumption. For any individual in the ecosystem, the cost to them need never exceed twice the file size in bandwidth plus once the file size in storage, no matter how many copies are distributed.

With a physical product, the average cost approaches the per-unit cost as the number of units produced increases. With peer-to-peer file sharing, the total cost approaches only twice the per-unit cost as the number of units produces increases.

It seems to me that eventually a point would be reached where bandwidth would be so overloaded that costs would start to rise and so would marginal cost.

That isn't the case because each individual brings with them their own bandwidth and disk storage, so the increase cost of supplying them with the product is paid by them. The available supply doubles as the demand doubles.

I was talking marginal cost.

No, you were talking average. If storage is a fixed cost then it falls out of the marginal costs being a constant and all.

And assuming your cost function is right (I'm too lazy to check), then the marginal cost is

1/(n^2).

For any n that cost is non-zero and finite. This suggests that the number of copies sold will not approach infinity. Possibly a large number, but it wont be that huge.

Yes, it will not be infinite, it will be limited by demand.

And demand is a function not just of taste but a number of factors such as bandwidth limitations, disk space, search costs, etc.

From the RIAA's perspective though, it's a difference that makes no difference, because either way the demand they can supply will eventually approach only 1 unit.

No. The marginal cost is low enough that the amount supplied would be extremely high. The problem is that the RIAA (more accurately their backers), due to rent seeking behavior, is currently collecting some nice rents. They see that technology has changed that threatens those rents so they are engage in rent protecting, expending resources in a non-productive manner. Everything the RIAA and MPAA does in this regard is, from a social perspective, a loser. Funny how the Democrats often get on this bandwagon. And the kicker is that the benefits of these rents rarely if ever flow to the actual artists who create the songs/movies. Well maybe not so much the case for movie actors.

Not sure when you did this, but the studios did consider it a problem. Macrovision got its start by putting up barriers to prevent people from doing just that. It distorted the video for any protected tape/DVD that went through another VCR. It created some real problem for people that had TV/VCR combos because they couldn't plug their DVD player in without it going through a VCR.

By the time that DVDs came around, about the only two things that weren't Macrovision-protected were specialty products like anime and home movies and whatnot. People used to pay quite a premium for rigged VCRs and DVD players that weren't crippled by Macrovision.

So while the total cost to the distributor increases with the number of copies, it will never be more than twice the size of the original copy, for either the original distributor or any of the recipients.

The relevant measure isn't average cost, but marginal cost, generally speaking.

I was talking marginal cost.

From an economy wide view point there are enough costs out there to suggest that the number of copies that will be produced is not infinite, as per your suggestions, but finite. Neither you nor I will download certain movies becuase our value of them is less than what we value our disk space, bandwidth, and time.

Yes, it will not be infinite, it will be limited by demand. From the RIAA's perspective though, it's a difference that makes no difference, because either way the demand they can supply will eventually approach only 1 unit.

It actually costs me less the more I distribute. There is no economic pressure to moderate my distribution, there is in fact the opposite.

The relevant measure isn't average cost, but marginal cost, generally speaking.

While you are correct that there is a proportional per-copy cost on possession, the is either a flat or decreasing per-copy cost on distribution. The RIAA doesn't care how many copies of Sex and the City you have, they care about how many copies you are distributing.

You are still missing my point. From an economy wide view point there are enough costs out there to suggest that the number of copies that will be produced is not infinite, as per your suggestions, but finite. Neither you nor I will download certain movies becuase our value of them is less than what we value our disk space, bandwidth, and time.

The problem from the RIAA and MPAA view point isn't that people are going to make lots of copies, but that people are going to get around paying the monopoly price (monopolistic prices) for said copies...the rents of which goes into the backers of the RIAA and MPAA's pockets. If they could cash in on all those copies they'd give their blessing.

I suggest you look at that again. It does indeed put a limit on the amount of distribution. Not to mention that you have to have disk space, you have to have a way of viewing the material as well, recieving the copy, etc. The costs are small, but not zero.

Okay, lets take a specific example, like Bittorrent:

The cost for me to distribute is X storage and X bandwidth for a total of 2X, where X is the size of the file.

The cost for me to distribute 10 copies is X storage, and 1+1/11X bandwidth, for a total of 2+1/11X.

The cost for me to distribute 100 copies is X storage and 1+1/101X, for a total of 2+1/101X.

It actually costs me less the more I distribute. There is no economic pressure to moderate my distribution, there is in fact the opposite.

Now lets look at it from the recipients end. If I distribute one copy, it costs the recipient X storage and X bandwidth, for a total of 2X. If I distribute 10, 100, 1000 copies, it still costs the recipient 2X. Again, there is no economic pressure that will moderate the distribution.

Let me ask it this way: how many episodes of Sex and the City do you have on your computer disk right now? If the cost is zero you should have them all.

While you are correct that there is a proportional per-copy cost on possession, the is either a flat or decreasing per-copy cost on distribution. The RIAA doesn't care how many copies of Sex and the City you have, they care about how many copies you are distributing.

But from the perspective of every individual, there is only a one time, fixed cost, no matter how many copies are distributed, so there is no economic pressure to restrict the amount of distribution.

I suggest you look at that again. It does indeed put a limit on the amount of distribution. Not to mention that you have to have disk space, you have to have a way of viewing the material as well, recieving the copy, etc. The costs are small, but not zero.

This is one of the things that gets me about digital copyrights stuff. Most people say "It costs nothing there will be an infinite number of copies any second now!!!"

Yes I know that is an exaggeration, but that is the implication of having zero costs. Everybody can have not just one copy but 50,000,000 and they can do it this very second.

Let me ask it this way: how many episodes of Sex and the City do you have on your computer disk right now? If the cost is zero you should have them all.

:)

Economically speaking it is still a cost. The idea that the costs are zero, at an aggregate level is simply not the case.

But from the perspective of every individual, there is only a one time, fixed cost, no matter how many copies are distributed, so there is no economic pressure to restrict the amount of distribution.

The recipient of the copy has a cost of disk storage, not the distributor.

Economically speaking it is still a cost. The idea that the costs are zero, at an aggregate level is simply not the case.

True, Steve, but in the near term they've off-loaded their costs so I'm sure that the companies involved feel it's well worth it.

Actually it is worse than you make think, given the above. Worst case scenario:

A monopolist who got to be a monopolist by rent seeking is currently recieving $100 in economic profits, or rents.

Another firm would like that $100.

The incumbent spends upto $100 protecting the rents. The challenger spends up to $100 challenging the rents. Add on the deadweight loss and the loss to society is greater than 2x the rents since rent seeking produces nothing, but is merely arguing over who gets how much of the existing pie. That is a significant economic cost.

But WTF, lets go with more government activity that could lead to economic rents. Vote Obama...or vote McCain, no difference really.

No, you'll need at least 2x the storage space and while disk space these days is indeed cheap it isn't zero.

The recipient of the copy has a cost of disk storage, not the distributor.

With digital files, copies cost nothing.

Epic fail.

No, you'll need at least 2x the storage space and while disk space these days is indeed cheap it isn't zero.

As for the lawsuit: Rent Protection. This is one reason why rent seeking is such a loser, economically speaking.

Also, I keep calling them RealMedia, instead of RealNetworks, my mistake.