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This argument is basically wrong because it supposes companies don't have market power when they do. "Market power" doesn't mean monopoly. It takes at least fou

This argument is basically wrong because it supposes companies don't have market power when they do. "Market power" doesn't mean monopoly. It takes at least four and more often at least a dozen viable competitors before you have enough that there isn't an implicit cartel, and there are altogether too many markets where this is the case. Nearly all specialty or line of business software, for example. These markets commonly have two or three providers and rarely have hundreds. Literally the intended purpose of copyright in this context is to give the authors market power. And then the example given is the sympathetic one. The premise here is that there are the same number of customers willing to pay $40 as $10, and so the rational choice for a company not engaged in price discrimination is to charge $40 to everyone and price discrimination allows them to provide a "discount" to half of the customers. Now suppose that only 10% of the customers would be willing to pay $40. The single-price profit-maximizing strategy is then to charge $10, because 100% x $10 is more than 10% x $40, and no customer benefits because all price discrimination does is allow them to overcharge the remaining 10%. More to the point, in an actually competitive market, price discrimination isn't possible. If the marginal cost of providing the service is $7 and anyone is charging $40 to anyone, someone else could take those customers by charging $39, and someone else could take their customers by charging $25, until the market price is a thin margin over the underlying cost of providing the service. Because even the customers willing to pay $40 would prefer to pay $8, and the company that has 0.25% market share at $40 would rather have 10% market share at $8. The better argument in favor of the "SSO tax" is the one from the comments: That SSO actually increases the cost of providing the service by raising support costs.

noleary 2y ago
I can identify basically three criticisms of my argument in your post. (1) That I assume companies never have market power. (2) That I suppose "market power" implies monopoly (3) That my example was cherry-picked. 1. I did no such thing. I explicitly acknowledged market power several times. 2. Again, not correct. I explicitly mentioned oligopoly (assuming that 'imperfect competition' wouldn't land). 3. Of course it was. I acknowledged as much! I quite literally said the example doesn't generalize. The example serves to illustrate a 'there exists' claim. I felt a concrete example would be easier to follow than some kind of generalized model. Your own comment claims that "actually competitive" markets can't have price discrimination. Sure, we can suppose the law of one price applies to perfectly competitive markets, but there's no sense in which a perfectly competitive markets "actually" exist at all! The obvious observation we can make is that such competitive dynamics imply that no one would make any profit! My appeal to the airline industry as an example was not an accident. There's a very well-established literature on the relationship between competition and discrimination in the airline business. It's *certainly* not a settled question that discrimination decreases as competition intensifies. I included a classic from Stavins below that finds precisely the opposite of your claim. My argument here isn't perfect. I can think of many flaws, many reasonable objections. But I don't think you're using any of them here. ---- Referenced paper from Stavins: https://www.bostonfed.org/publications/research-department-working-paper/1996/price-discrimination-in-the-airline-market-the-effect-of-market-concentration.aspx https://www.bostonfed.org/publications/research-department-w...
- AnthonyMouse 2y ago
  > I did no such thing. I explicitly acknowledged market power several times. Your premise is that if market power exists then market power is the problem rather than price discrimination. The issue is that price discrimination isn't possible without market power. Its presence implies that the company both is capable of and is overcharging the people coerced into the higher price tier. > That I suppose "market power" implies monopoly This is not an argument you make explicitly, but it's something readers commonly assume and my point is to highlight that companies successfully engaged in price discrimination can and do have market power even if they don't have a full monopoly. > Of course it was. I acknowledged as much! I quite literally said the example doesn't generalize. The example serves to illustrate a 'there exists' claim. I felt a concrete example would be easier to follow than some kind of generalized model. And I'm providing the 'there exists' claim for the alternative, to demonstrate that price discrimination can be (and often is) detrimental to customers without providing any countervailing benefit to any of them. > The obvious observation we can make is that such competitive dynamics imply that no one would make any profit! Profit doesn't really work that way. For example, if a company takes investment and uses it to buy a building to operate out of, the money not paid as rent to a landlord is added to the investor's profit, but if the company takes less investment and instead pays rent, the same money is counted as operating costs. Likewise, if you develop software needed before you can start operating and you take investment to pay for it, the net returns are called profit, but if you take a bank loan to pay for it then the interest on the loan is counted as operating costs again. The interest rate you'd pay the bank would even be proportional to the risk you'd fail, unless you post collateral, for which you'd need an investor. So a company that didn't take any investment and operated entirely by renting everything, taking loans and using off-the-shelf software instead of developing anything in-house wouldn't be expected to make any profits in a perfectly competitive market -- and there would also be no investors to pay any profits to. Profit in companies that take investment would still be present and equal the cost (time value) of the assets bought with the money, but in a perfectly competitive market this would exactly equal the risk-adjusted market rate of return in the overall capital markets. The distinction in uncompetitive markets is that profit exceeds that amount. (Or at least can; a market can be uncompetitive and then the companies become inefficient from lack of competitive pressure and waste the money they extract from customers instead of returning it to investors.) It's true that "perfectly" competitive markets don't exist in the same sense that perfect anything doesn't exist, but this is splitting hairs. A gold coin might be .999 gold and you can say that it isn't perfect but you can still distinguish it from a wooden nickel.

noleary 2y ago

I can identify basically three criticisms of my argument in your post. (1) That I assume companies never have market power. (2) That I suppose "market power" implies monopoly (3) That my example was cherry-picked. 1. I did no such thing. I explicitly acknowledged market power several times. 2. Again, not correct. I explicitly mentioned oligopoly (assuming that 'imperfect competition' wouldn't land). 3. Of course it was. I acknowledged as much! I quite literally said the example doesn't generalize. The example serves to illustrate a 'there exists' claim. I felt a concrete example would be easier to follow than some kind of generalized model. Your own comment claims that "actually competitive" markets can't have price discrimination. Sure, we can suppose the law of one price applies to perfectly competitive markets, but there's no sense in which a perfectly competitive markets "actually" exist at all! The obvious observation we can make is that such competitive dynamics imply that no one would make any profit! My appeal to the airline industry as an example was not an accident. There's a very well-established literature on the relationship between competition and discrimination in the airline business. It's *certainly* not a settled question that discrimination decreases as competition intensifies. I included a classic from Stavins below that finds precisely the opposite of your claim. My argument here isn't perfect. I can think of many flaws, many reasonable objections. But I don't think you're using any of them here. ---- Referenced paper from Stavins: https://www.bostonfed.org/publications/research-department-working-paper/1996/price-discrimination-in-the-airline-market-the-effect-of-market-concentration.aspx https://www.bostonfed.org/publications/research-department-w...

AnthonyMouse 2y ago
> I did no such thing. I explicitly acknowledged market power several times. Your premise is that if market power exists then market power is the problem rather than price discrimination. The issue is that price discrimination isn't possible without market power. Its presence implies that the company both is capable of and is overcharging the people coerced into the higher price tier. > That I suppose "market power" implies monopoly This is not an argument you make explicitly, but it's something readers commonly assume and my point is to highlight that companies successfully engaged in price discrimination can and do have market power even if they don't have a full monopoly. > Of course it was. I acknowledged as much! I quite literally said the example doesn't generalize. The example serves to illustrate a 'there exists' claim. I felt a concrete example would be easier to follow than some kind of generalized model. And I'm providing the 'there exists' claim for the alternative, to demonstrate that price discrimination can be (and often is) detrimental to customers without providing any countervailing benefit to any of them. > The obvious observation we can make is that such competitive dynamics imply that no one would make any profit! Profit doesn't really work that way. For example, if a company takes investment and uses it to buy a building to operate out of, the money not paid as rent to a landlord is added to the investor's profit, but if the company takes less investment and instead pays rent, the same money is counted as operating costs. Likewise, if you develop software needed before you can start operating and you take investment to pay for it, the net returns are called profit, but if you take a bank loan to pay for it then the interest on the loan is counted as operating costs again. The interest rate you'd pay the bank would even be proportional to the risk you'd fail, unless you post collateral, for which you'd need an investor. So a company that didn't take any investment and operated entirely by renting everything, taking loans and using off-the-shelf software instead of developing anything in-house wouldn't be expected to make any profits in a perfectly competitive market -- and there would also be no investors to pay any profits to. Profit in companies that take investment would still be present and equal the cost (time value) of the assets bought with the money, but in a perfectly competitive market this would exactly equal the risk-adjusted market rate of return in the overall capital markets. The distinction in uncompetitive markets is that profit exceeds that amount. (Or at least can; a market can be uncompetitive and then the companies become inefficient from lack of competitive pressure and waste the money they extract from customers instead of returning it to investors.) It's true that "perfectly" competitive markets don't exist in the same sense that perfect anything doesn't exist, but this is splitting hairs. A gold coin might be .999 gold and you can say that it isn't perfect but you can still distinguish it from a wooden nickel.