> Digital goods should not be "free" and appropriating them without economic exchange is theft

This feels like a petitio principii. Legally it is incorrect, and as an argument it is unsophisticated nearly to the point of being a slight on the intellectual abilities of our fellow commentators here. I'd like to think that we all here are fairly intelligent and well-informed, and I feel that it is incumbent upon ourselves to present cogent, well-reasoned arguments, which do not trivialize the opposing side, but which are well-supported with appropriate citations. I believe that you have a valid position and that the discussion is one worth having. I read your comments here fairly often and have never yet found anything in them which would subtract the least measure of my respect, but I do think you do yourself and your position a great deal of harm by arguing in this manner.

[0] "The Public Domain: Enclosing the Commons of the Mind" http://thepublicdomain.org/thepublicdomain1.pdf

"However, it is a fundamental economic principle that the cost of a good will approach the marginal cost of production."

This is fundamental to the economics of goods but it clearly doesn't hold for information. When I started researching this topic in 1995 it was exactly because I was stuck in that same discontinuity of understanding. Why were people paying for a CD that had a copy of an operating system they could download for free? A goods economist would, like you state, observe that the supply of such CD's was essentially infinite or at least very high, and the marginal cost of producing one very very low, so how could they maintain a market price that was probably 20x their marginal production cost? That price has a component that is clearly not described by classic economics, what was it? In that same store the cost of blank CDRs was pummelled relentlessly by the reduction in marginal production cost. From over $10/CDR disk when things started down to about $0.43/CDR. Why are they pummeled into the ground and not the Linux Distro of the week CDRs?

I started pulling on that thread a long time ago and haven't stopped. Starting with the question, "What gives information value?" Using what I've learned over the years it has helped me understand and analyze things like what does Google sell really? or Why do non-DRMed artistic products make more money than DRMed ones? Or why did CD sales fall faster after Napster shut down? Can you price awareness? Why did "Its a wonderful Life" enjoy greater success after its Copyright lapsed? Etc.

Right, it is clearly true that pure information has no marginal cost of production. This does not contradict anything I have said. If you think it does, I am afraid that the fault is with your own understanding.

>>> Realistically, digital goods should be "free."

> I'm afraid to have to say that your argument is tangential and somewhat misleading.

???

Fundamental principles of economics dictate that this situation will not happen naturally. The author is not needed to create copies, and therefore prior to the invention of copyright, no one had any conception that he should be compensated for each copy. It's not like he labored to make the copy himself. The guy turning the handle on the press sure isn't going to be easily persuaded that the author deserves a share of the fruits of that labor. On the other hand, we as humans do really like good books, plays, music, etc, and it is considered fair to most that if someone makes a really popular work, that he get some sort of additional compensation for that. Before the wide adoption of copyright, and even through to the end of the 19th century, copyright violation was common enough that "authorized editions" were still common. Gilbert and Sullivan's British copyright on their works was not respected in the United States. American theater companies copied G&S's work almost as soon as it was performed, but people still preferred going to authorized or licensed performances, at least if they had the option, so G&S (well, really Carte) did pretty well from licensing. I digress somewhat, but I would like to note that this is actually an argument for copyright, especially as the least-market-disturbing option. The right to officially monetize some creative work is sometimes valuable enough in and of itself for there to be a market for it, just not most of the time, and there wasn't any recourse if anyone didn't want to work out a licensing deal. This worked out pretty well because copying and distributing physical media was fairly easy to detect and punish, even if the idea of owning a particular idea was understood by most to be fairly absurd.

The other fundamental issue with copyright in the digital age is that the actual marginal cost of making a copy of Harry Potter is no longer that $8.30 in paper and ink, it's a number so close to zero as to be difficult to establish. Trying to argue for a digital copyright is as futile as arguing with the tide. Whether you or I like it or not, we are effectively in a post-copyright world, and nothing will bring the old world back -- it doesn't cost money to distribute media, so we can't give any part of those profits back to the artist. We need new business models, and as it happens, and as this article discusses, Netflix seems to be stepping up to the plate here in a big way. If you would like to actually articulate a position I am sure I would be interested in further debate rather than just having the opportunity to repeat myself in slightly different words.

It improves readability.

The limited-supply good is the copyright license, not the information. The natural value of the digital information is zero, and it is still possible to sell value added services such as printing and binding for a sufficiently popular work.

The real question is for how long should the copyright privilege--and its arbitrarily set licensing costs--be extended?

(A DVD full of ones might be worth more than a movie DVD, and is definitely worth more than a DVD full of zeroes, if it is actually a blank writable disc. The zeroed-out disc might still be of some use as a diffraction grating or drink coaster.)

I see it rather differently, in part because I think this statement conflates two things. One is information value and the other is how we have tried to stuff information value into goods economy ideas. Perhaps an example will help clarify my understanding for you.

This example comes from a friend of mine at Facebook who was getting his MBA from Berkeley at the time;

Imagine you have a soda machine, it is sitting there with a selection of ice cold beverages. Now anyone who has traveled around knows that the "price" for a single beverage from a soda vending machine varies, often by a lot, from a low value when it is in a company cafeteria to a high value when it sits in the floor vending nook of a high priced hotel. But its the same soda. Our imaginary machine is different. It has a variable price right in the machine! If you give it $2.00 it will immediately dispense an ice cold soda, if you give it $1.00 it will give you a ticket that will dispense your selection 60 minutes from now, and if you pay it $0.50 it will give you a ticket that will dispense your selection two hours from now. The purpose of the machine is to capture as much value for the soda as possible, from the "I don't care what it costs, give me a soda" crowd, to the "Ok that is the same as I would pay for it in a grocery store" crowd. All from the same machine.

Now you're sitting there looking at the machine and counting out $2.00 when someone walks up to you and asks what you're going to buy, they offer to sell you their ticket, which they bought nearly two hours ago, for that soda which is going to drop in a few minutes for $1.50.

Think about that transaction for a minute. What did you buy? Did you buy a soda? Or did you buy the information that a soda would drop in a few minutes? There is no copyright here, no patent, there is instead two of the fundamental ways that information gains value, it is timely and rare. Timely, in that you want a soda now and this person knows when that soda will be available, and rare in that there isn't really any other way to get that information, only the person who bought the ticket (and presumably some timer inside the machine) has it. It was always a $0.50 can of soda, but that extra $1.00 value came from information about its availability which you bought from this stranger.

There is an interesting experiment you can run which shows this effect pretty clearly, in the experiment you have three operators and a number of test subjects. Operator #1 is offering to buy the information about where a queen is positioned on chessboard in a building several hundred yards away. You get a ticket for the information that is wanted, walk over the building, show it to Operator #2 who is standing by the chess board, they look at your ticket and move the queen to the place on the board, you return to operator #1 and collect your fee. Now you have operator #3 stand somewhere in the path between operator #1 and operator #2, they offer to sell you the information about the position of the queen for 10%, 25%, 50%, or 75% of the fee value.

You can use information economics to understand the natural value of information (vs the imposed value) and when information is "intrinsically" valuable or merely "temporally" valuable, and when you can create value out of collections of "free" information.

The takeaway though is that it is the information does have a value (again if it did not then people wouldn't miss it if they didn't have access to it) but individual assessments of value differ (why will some people subscribe to the WSJ and others only read it by going to the library and reading it for 'free'[1]).

And as a PostScript I specifically picked a DVD full of zeros because as you point out a DVD full of 1's is a blank DVD that can be programmed and a DVD full of random bits is an entropy source which can be used to improve the strength of one's cryptography, so really only a DVD full of zeros has the least value.

[1] Travelling to the library has its own opportunity costs and costs of execution (getting there, meeting time schedules, keeping a library card in good standing, Etc.)

That parasitic vending machine has another parasitic vending machine next to it, which has an ever better prediction model, such that it buys from the other two machines only when it knows that the second one hasn't bought enough to meet future instant demand. For instance, perhaps it knows the schedule for a nearby convention, when the other parasite only knows average daily purchase volume. So 2 hours from the end of the headline event, the third machine puts in a big order from the first, and then two hours before the end of the expected surge, buys out the second machine so that it can't undercut using its available stock. It then sells out at a higher price and waits for the next opportunity.

So the only time anyone ever sells a drink for $2 is when an unexpected busload of thirsty tourists drops by and buys out the entire stock of cheap, instant beverages.

In your example, you have also forced my hand. What happens if I instead buy a 2 hour ticket, right in front of the guy, and ask what his price would now be to trade my ticket for his?

A couple of interesting (and non hypothetical!) things to ponder. What is the value that motivates people to buy DVDs that are a bootable install and/or live image of a free OS for $9.99 at Fry's? Similarly, what is the purchase calculus that someone does when they buy a paperback book in an airport bookstore which is a book they already own and have a perfectly readable copy at home?

We don't have Fry's here, but depending on your 'net connection it can be cheaper / more time effective to buy a physical version instead of a download. See also physical console games.