Friday, November 18, 2011

Napster and ITunes

Dr. Roberts discusses the economic consequences of leaving Napster unmolested by the legal system.  His argument is that in the long run the market will correct for the lacuna of enforcement.  The market did produce a viable alternative to Napster, ITunes.  If you can remember, using Napster almost guaranteed downloading malware onto the hard drive of your computer.  After so many trips to the Geek Squad, (where you have a sneaky suspicion that they are not really doing anything to help anyway), you have to buy another computer.  ITunes allowed the user to purchase not only just a single song at the relative diminutive price of $.99 but allowed you to purchase a song in the full knowledge that you would not be downloading some foreign spyware, virus, or malware onto your computer.  I would posit that a good portion of our society likes to obey the law, and when given a safe, viable alternative, they will use a legal market to obtain goods over an illegal one.  The illegal one, Napster, even if left unprosecuted came with the additional cost of malware, which depending on your computer savvy skills could mean a trip to Best Buy to purchase a new computer.   
                The internet brings up a host of legal and economic questions.  How much government intervention do we want in the cyber realm?  Is the market a viable option to the capacious amount of illegal activity in the cyber realm? 


  1. No amount or government intervention will stop illegal activity on the internet. Individuals will always try to break incentive structures especially when they view themselves as anonymous. Rather that attempting greater policing and giving the FBI greater reach, perhaps allowing the market to align is the best solution. Right now there are many identity theft and internet security companies to offer private security solutions. However going further one could view the problem as systemic. If my identity is stolen someone can use my personal information to take money from me to incur debt in my name. But they are not actually taking money from me, they are taking currency, currency that doesn't even exist. Electronic money is just verified numbers in a central system. Credit unions can create this money fairly easily as can businesses in the forms of discounted gift cards. Simple tax trick, sell gift cards on sale but report sales not in inventory moved but in revenue earned. This works when suppliers offer various sale incentives that avoid taxation problems. Perhaps without legal tender laws the market could establish what money is and the effort put into manipulating money and identity theft could be circumvented.

  2. This is an efficiency question when you ask about how much government regulation do you want on internet. You have to ask what the benefits and costs (including opportunity cost). Similarly, you as an individual, you ought to ask yourself what are the benefits of investing in protecting your computer compared to the costs. Finally, the question that is to be asked can the market do better than the government? Can a decentralized process of protection, codes, customs and rules among internet users be efficient than a centralized process? Cyber-crime rate will never be zero and the efficient amount of cyber-crime rate is not zero from a strict economic viewpoint.