Get a Life

So an article in Slate is driving me nuts. It's about music downloads. The basic argument is that not all songs should cost 99 cents. That's fine with me, but he goes on to suggest varying the price of a song with the number of downloads. He calls this "a real-time commodities market that combines aspects of Apple's iTunes, Nasdaq, the Chicago Mercantile Exchange, Priceline, and eBay." He also claims his idea is "a pure free-market solution—the market alone would determine price."

What he doesn't explain is that the mechanism by which his idea determines price wouldn't reflect the same thing that, say, NASDAQ does. Automatically raising the prices when a high volume is demanded isn't necessarily efficient at all. Of course, it might be - I can imagine an argument for it - but the point is that when you throw around words like "pure free-market solution" and "the Chicago Mercantile Exchange," you should be able to back them up with real analysis. The fact that prices change in response to consumer demand doesn't by itself make a system "free market" or efficient.

He also ignores the interesting details of the situation. The Post Office doesn't expend the same effort on every letter, but it charges the same amount to send a standard letter for simplicity. It would also be very unclear to a potential iPod customer how much her desired library of music would cost ahead of time (this is distinct from the point he makes about Steve Jobs, which is that cheap songs help sell iPods).

It might be in the music companies' interest to charge different prices for different songs, but there's no reason to think they would use his simplistic algorithm. I guess what upsets me is that he's taken an interesting idea (the algorithm by which companies can maximize their profits) and turned it into an annoying exercise in pseudo-economics. Get a life!