Running ahead of the evidence on P2P

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Larry Lessig points to the NYT's editorial on the Grokster case. I'll say this about them: they understand that it's about incentives:
But when the Supreme Court takes up the issue this week, we hope it considers another party to the dispute: individual creators of music, movies and books, who need to keep getting paid if they are going to keep creating. If their work is suddenly made "free," all of society is likely to suffer.

...

The founders wrote copyright protections into the Constitution because they believed that they were necessary for progress. Movies, music and books require investments of money and time. If their creators cannot make money from them, many will be unwilling or unable to keep producing. Or they may have to finance their work in troubling ways, like by building in product placements or taking money from donors with agendas.

This is a reasonable argument on theoretical grounds, but it's important to take a step back and look at the chain of reasoning:

  1. The amount of content purchased is strongly affected by the availability of free content.
  2. Content creator's income is strongly tied to the amount of content purchased.
  3. The amount of content supplied is fairly elastic.

Each step of this argument is theoretically plausible, but the reverse is also plausible, and we don't really have the data to be sure either way.

The research on the effect of free content on content sales is at best equivocal. We don't have a definitive answer that there's no effect, but the evidence doesn't really support the assertion that there's a definite effect. Indeed, at least one study suggests that there's no significant effect in current filesharing networks. Now, it's true that those networks aren't as usable/available as one might like, but consider that lots of content is available from AllOfMP3 and that doesn't seem to have put that big a dent in music sales.

Step 2 is also fairly questionable. It's true that if you're one of he few really successful writers or musicians, then you make most of your money directly from the sales of your content, but a lot of content creators make most of their money indirectly. For instance, if you're an author of a technical book, unless you have a real blockbuster, you probably make more money indirectly from your enhanced reputation--and the increased compensation it lets you command--than from royalties directly. I imagine that this is true for a lot of non-technical authors and musicians as well.

Finally, consider Step 3, the claim that the amount of content supplied is elastic. I don't know of any evidence that this is true. On the contrary, if you look around you'll notice that an enormous amount of uncompensated content being produced, in the form of free software, music, and blogs. To take only the case of music, realize that despite the shockingly small amounts of money that most professional musicians make, there seems to be a near infinite number of people with day jobs just waiting for their shot. Why should we expect that to change if the amount of revenue those artist make shrinks by 50?

The truth is that we don't know with any real certainty what the effect of widely available free content on the supply of new content would be. We certainly don't know that it would have a big enough negative effect to offset the deadweight loss that we know we're suffering due to restricted availability of content. Anyone who suggests differently is probably making stuff up.

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How do we know the extent of the deadweight loss that we know we're suffering due to restricted availability of content?

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