The costs of illegal downloads


I think it's probably fair to say that Ben Goldacre is currently the best writer about science in the British newspapers. This piece of his about what is purported to be the cost of illegal downloads is a good example. It would appear that the debate over what the law should be is being driven by an conspicuous absence of rigorously sourced facts. The headline number employed is:

An industry estimate, as an aside, in a press release.

You'd hope that they would be able to do better than that really.

However (and Ben does say that he's not an economist so we can forgive him not stating this) there's a much larger problem with all of these estimates of the costs of downloading, of pirate production, of couterfeiting.

Reports always, but always, take the form of x illegal pieces or downloads and the value of a legal sale is y thus to total cost is xy. Which betrays a rather alarming lack of understanding of the most basic building block of economics. That as prices change so does demand.

It might be that demand doesn't change very much with prices, it might be that it changes a lot, but we're absolutely certain that the demand for a music album at £10 each is different from the demand for the same album at £0. Thus we cannot assume that all of those who get a counterfeit or illegal download of music would in fact have purchased one at the full price: indeed, we're pretty much certain (unless we think there are Giffen Goods hidden in here) that the number of purchasers at £10 will be lower than the number at £0.

So whenever you see the costs of these actions being calculated in that xy manner simply snigger and ignore the argument. They're either ignorant or, what is worse, propagandists.