> We don't consider compensating producers as an externality where physical goods are concerned, so why is it an externality for intangible goods?
That's a good question. One important difference is that, at the point of which duplication is possible, the intangible good already exists. Compensating the creator for creating the good may or may not encourage future creations. It's a sunk cost. It's also the only cost.
> One important difference is that, at the point of which duplication is possible, the intangible good already exists.
Not so fast. Yes, duplicating intangible goods is relatively inexpensive, but at point of purchase and use, tangible goods also exist, the costs are sunk, etc, so they're exactly the same.
In both cases, payment compensates producers for effort and resources that have already been expended.
Each incremental physical good deprives someone else of a copy of that good which could otherwise be gained. This is not true for digital goods, which have zero marginal cost. No tangible good has a zero marginal cost.
> Each incremental physical good deprives someone else of a copy of that good which could otherwise be gained. This is not true for digital goods, which have zero marginal cost. No tangible good has a zero marginal cost.
While true, that's irrelevant to an argument that claimed that sunk costs were an externality that wasn't all that important.
How is it "optimal" if it doesn't address the obvious cost?
We don't consider compensating producers as an externality where physical goods are concerned, so why is it an externality for intangible goods?