Wednesday, May 12, 2004

Perfect price discrimination

Peter, at Crescat, has a post on Jane Ginsburg's copyright theories. Frankly, this strikes me as a rather silly attack he has launched. First, Peter:

In discussing whether there ought to be any "fair use" exceptions to access rights, Ginsburg notes that "on the one hand, the 'market failure' genre of fair use should fade away in a world of perfect price discrimination and direct enforcement of copyright controls."

Let's take a step back for a second. Apparently it's standard stuff to invoke price discrimination as better than no-price-discrimination when dealing with monopolists... but still, one would think that the phrase perfect price discrimination would gave [sic] an author some pause. . . PPD is a world in which the monopolist gets everything, and the consumers are left just about indifferent between having been involved in the transaction and not.

Let's focus on that last sentence, in which Peter seems to lament that consumers are "indifferent" between being involved and not being involved in the transaction. Okay - that's accurate, but Peter's attempt to extrapolate from this fact goes awry. You would think, from his analysis, that society is no better or worse off with price discrimination. This is, unfortunately, wrong.

While it's fair to note that consumers are indifferent, this does not mean that society isn't better off. Ironically, Peter links to this piece discussing Judge Easterbrook's use of price discrimination. The point of Easterbrook's ProCD opinion--and of price discrimination generally--is that some goods just won't be made--or distributed--efficiently if there's no price discrimination. The author of the piece recognizes this ("In comparison with a monopolist charging a single price, a monopolist with a price-discrimination structure might be preferable.")

This is relatively intuitive: Price discrimination extracts consumer utility, so, by definition, there will be a higher income with price discrimination. But this also means that more goods will be made and that more people (those with lower willingness-to-pay people) get those goods! This is beneficial!

The concern over who gets the extra extracted income doesn't really matter -- that's a separate policy concern. Society would be better off if we had perfect price discrimination and we simply taxed companies and redistributed the money because companies would produce and consumers consume efficiently. The point is that people get what they want at the price they're willing to pay. This means no under- or over-consumption. This is a good thing.

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