Artificial scarcity
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Artificial scarcity describes the scarcity of items even though the technology and production capacity exists to create an abundance. The term is aptly applied to non-rival resources, i.e. those that do not diminish due to one person's use, although there are other resources which could be categorized as artificially scarce. The most common causes are monopoly pricing structures, such as those enabled by intellectual property rights or by high fixed costs in a particular marketplace. The inefficiency associated with artificial scarcity is formally known as a deadweight loss.
An example of artificial scarcity is often used when describing proprietary, or closed-source, computer software. Any software application can be easily duplicated billions of times over for a relatively cheap production price (an initial investment in a computer, an internet connection, and any power consumption costs). On the margin, the price of copying software is next to nothing, costing only a small amount of power and a fraction of a second. Things like serial numbers, license agreements, and intellectual property rights ensure that production is artificially lowered in order for business to gain a monetary benefit, thus giving businesses an incentive to produce software. Technocrats argue that if the the price system were removed, there would be no personal incentive to artificially create scarcity in products, and thus something similar to the open source model of distributions would exist.
With nearly all goods, a trade-off that occurs when decisions are decided about production. The graph shows the economic anomaly that occurs with artificially scarce products. Because leather boots consume resources, a trade-off is noticed between running shoes; i.e. in order to produce more boots one has to give up producing running shoes because of limited resources. This trade-off is illustrated by a move from P1 to P2 in the Production Possibilities graph on the left.
With computer software, no trade-off occurs (at least not one of significant value). To produce more of a certain piece of digital information, since virtually no resources are used to copy the information there is no trade-off with the production of other things, like shoes and boots. In essence, problems of artificial scarcity usually arise when a good that was once scarce becomes abundant due to extreme increases productivity and technology.[1]
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[edit] The need for artificial scarcity
In a market economic system, an abundance is not produced because excess product is considered an inefficient use of resources; those resources could be used elsewhere to produce something in greater demand to fulfill more wants. A paradox is reached with artificially scarce products, as an abundance is possible, yet without creating scarcity via legal or subversive means, there is minimal profitability. If scarcity is allowed to reach zero, the economic model fails. If natural scarcity no longer exists scarcity has to be created to ensure function of the system.[2]
[edit] Economic tools to promote artificial scarcity
- Price floor - This discourages access to a resource (creating scarcity and profits) and waste is produced.
- Price ceiling - Discourages production while encouraging consumpution of a resource (two way creation of scarcity).
- Subsidies, which may be subsidies to production (usually creating surpluses) or subsidies to consumption (usually creating shortages).
- Cartels
Reasons that these tools are used is to prevent market failure, preserve profits for producers, or reducing costs for a certain group.
[edit] Responses to artificial scarcity
- The term is used by the Technocratic movement[3] to point out one flaw of productive inefficiency in the price system and takes the above example of digital information in microcosm. The movement claims that a technologically advanced state is capable of producing an abundance of virtually everything. Technocrats point out empirical evidence; even though the productive capacity exists to feed everyone in the world, we underproduce, we throw away, or we misallocate because there is no way to sell an abundance. They state that a conflict between scientific reality and economic tradition stifles the possibility for abundance. A price system only creates opportunities for scarce products.
