Ruminations on Russia

LOL, right you are Alistair; I also think its a load of bullocks whenever firms/industry members claim they lose/lost X amount of revenue via piracy primarily because of ineffective pricing and:
a) it is impossible to know even a rough estimate of how many pirated copies of a product ate in existence. Producers/users/buyers of such typically do not self-identify or maintain public records.
b) Even if the stats were known, they'd still be irrelevant because you don't lose what you don't have. I.e. buyers of cheaper, pirated copies of products worlwide are unable/unwilling to buy at regular price even if copies didn't exist. So you can't say you lost so much due to piracy because you would have never realized those sales to begin with.

I'll have to disagree with the comment that buyers of pirated copies are people who wouldn't buy copies at regular prices.

It's a commodity. If I can buy from two suppliers -- one at $X, and one at 0.5 * $X, then I'm going to buy from the seller at 0.5 * $X. Unless I have a disincentive to do so (see, for example, the prosecution of U.S. businesses using pirated versions of software). The greater the disincentive, the more likely it is that I'll assume that the savings isn't worth it.

Same with pirated music, etc.: if it's inconvenient for me to get a pirated version of something, and I don't want to suffer the consequences of potentially being caught, then I won't buy it -- I'll buy the regular version, because it's more convenient/lower risk. Likewise, if I'm a seller, if it's inconvenient for me to sell the pirated version (I can't set up shop on a street corner), or I'm likely to go to jail, I'll either do something else (reducing supply) or I'll raise my prices to account for my inconvenience/risk (reducing demand and reducing the price differential).

Either way, the anti-piracy actions push people in the direction of the legitimate suppliers and away from the black market. The black market continues to exist, but at a different price point and with more limitations.

The bigger point is that, if anti-piracy legislation doesn't exist/isn't enforced, then people who would be willing to pay more (and buy a legitimate copy) will, instead, save the $10-$15 (for music) or $100-$500 (for software) because they have a major incentive to save that money and no disincentive not to.

So, yes, the software and music industries are losing what they don't have, because there's a portion of those sales that they would have had.

Exactly where the supply-demand curves fall, well, you'll need a good microeconomist for that information. There's enough collectible data that you could make a rough estimate; whether it's worth it to collect that data would be debatable.

FYI, even the people who aren't *selling* pirated software/music -- the people who are simply *giving* it to their friends -- cut into regular sales. There's some debate over whether those gifts then get people to buy legitimate product -- but, again, that then assumes that there's an incentive to pay for the legitimate product. In the US, there may be (though, with the proliferation of MP3 players, not so much any more); in Russia, I'm not so sure -- unless, again, the anti-piracy laws are enforced. Too easy to get the pirated version.

It's all about the incentives.

My final comment of my post probably gave away my views on this discussion. When the music and film industries treat the consumer with the respect that he is due as the purchaser of serivces then anti-piracy legislation should be enforced.

Until then consumers will vote with their wallets. The approach above suggests that buyers are entirely logical i.e. if the same good costs less in one location than another - even if it is illegal - then buy the cheap version. I disagree with the premise; provided that the ease of purchase is the same and the goods are relatively closely priced.

I stand by my assertion that in Russia today a consumer is not going to pay the same for a video as he would in the US. Look at the price of a Big Mac in Russia versus the US.

First, I agree completely that the Russian consumer is not going to pay the same price for a video as a US consumer. The Russian consumer is now used to easily getting low-cost videos, and, until disposable incomes are the same, will still want to buy as many videos.

Next, I also agree that the music and film industries act pretty idiotically about this stuff; they way overcharge for their product, and they appear to feel entitled to overcharging since they've gotten used to feeding at this particular trough. It's why there's so much piracy, even in the US: the legitimate cost for the product is so much higher than the value most people put on the product, yet people still want the product. So they pirate.

As to the same-good discussion, first, we have plenty of examples of how people will look at two different competitors and buy from the less-expensive one. I do this with the petrol for my car all the time. If I know I'm going to a town where the gas tends to be cheaper, I wait and fill up my tank when I'm in that town. If I see a petrol station that has the same BP petrol at a lower price, I buy there instead of at the place near my flat. And, I've noticed that, pretty quickly, the petrol station near my flat will drop its price to be in line with, or really close to, the stations I'm otherwise frequenting. Same with groceries, shipping, anything that's just about a commodity.

My argument above (I'm the same anon) was that, if the laws *aren't* enforced, then the illegal aspect doesn't matter as much. The supplier has to be worried that s/he will be caught, and the consumer has to be worried that *s/he'll* be caught. If they're not worried, the law might as well not exist. Kinda like speeding in the US. People do it all the time, because the chance of getting caught is small. So ... you don't really worry about it. And, interestingly, even though *everyone* knows it's illegal, plenty of people think that they are *entitled* to speed and get upset if the police pull them over (this is why one of the easiest ways to get out of a speeding ticket is simply being polite).

And, trust me: in the US, there's still quite a bit of piracy. I happen to know students at one of the local university, and I can have a pirated copy of just about any song I want within 24 hours, at the outside (that's assuming it takes awhile for me to get them to call me back). Most movies, too. If it's already out on DVD, I can get a full-blown DVD copy; otherwise, it might be one of those cheapo copies from a hand-held videocam (at which point I'll wait for the full DVD, because I like the quality better). I *don't* do this, but that has more to do with the fact that iTunes is easier and still relatively cheap, and that I don't watch many movies, than it does with any lack of availability.

If I have two suppliers for the same commodity, and there's no drawback for my using the cheaper one, then I'll use the cheaper one. Logic or not, it's easier, and I can then go buy that Big Mac I want (actually, I prefer Wendy's, so I'd get a single). If the setups on the street disappear because of anti-piracy legislation, then it's harder to buy the illegal copy and there's a more visible demonstration that the government is enforcing the legislation, so I'd be more likely to think about going to a music store and seeing if it's worth it.

Again, I agree: the consumers in the two countries aren't going to pay the same for a CD or DVD (even if they *do* pay the same for IKEA furniture, and the average purchase total is the same in Moscow as in the US -- as reported in the Moscow Times a few weeks ago). And I agree that, if the ease of purchase is the same, and the prices are close, then people will tend to go for the legal version -- assuming that they believe the laws may be enforced. And I agree that the music and film industries are absolutely trying to charge way too much for their product, which is why so many people turn to alternative sources (though I must admit that, if someone offered me a ticket on that gravy train, I'd be on board in a heartbeat -- money ain't nearly everything, but it sure is nice to have). My contention is that they do lose some sales to the pirates, because people don't believe the laws are enforced (which, from what I've read, they're not) and, thus, buyers don't see any reason to go to the trouble and expense of buying legal copies.

All *that* said -- thanks for your blog; it's nice for those of us on this side of the pond to be getting news from the rest of the world (the US can be kinda myopic, to say the least).

LOL, right you are Alistair; I also think its a load of bullocks whenever firms/industry members claim they lose/lost X amount of revenue via piracy primarily because of ineffective pricing and:
a) it is impossible to know even a rough estimate of how many pirated copies of a product ate in existence. Producers/users/buyers of such typically do not self-identify or maintain public records.
b) Even if the stats were known, they'd still be irrelevant because you don't lose what you don't have. I.e. buyers of cheaper, pirated copies of products worlwide are unable/unwilling to buy at regular price even if copies didn't exist. So you can't say you lost so much due to piracy because you would have never realized those sales to begin with.

I'll have to disagree with the comment that buyers of pirated copies are people who wouldn't buy copies at regular prices.

It's a commodity. If I can buy from two suppliers -- one at $X, and one at 0.5 * $X, then I'm going to buy from the seller at 0.5 * $X. Unless I have a disincentive to do so (see, for example, the prosecution of U.S. businesses using pirated versions of software). The greater the disincentive, the more likely it is that I'll assume that the savings isn't worth it.

Same with pirated music, etc.: if it's inconvenient for me to get a pirated version of something, and I don't want to suffer the consequences of potentially being caught, then I won't buy it -- I'll buy the regular version, because it's more convenient/lower risk. Likewise, if I'm a seller, if it's inconvenient for me to sell the pirated version (I can't set up shop on a street corner), or I'm likely to go to jail, I'll either do something else (reducing supply) or I'll raise my prices to account for my inconvenience/risk (reducing demand and reducing the price differential).

Either way, the anti-piracy actions push people in the direction of the legitimate suppliers and away from the black market. The black market continues to exist, but at a different price point and with more limitations.

The bigger point is that, if anti-piracy legislation doesn't exist/isn't enforced, then people who would be willing to pay more (and buy a legitimate copy) will, instead, save the $10-$15 (for music) or $100-$500 (for software) because they have a major incentive to save that money and no disincentive not to.

So, yes, the software and music industries are losing what they don't have, because there's a portion of those sales that they would have had.

Exactly where the supply-demand curves fall, well, you'll need a good microeconomist for that information. There's enough collectible data that you could make a rough estimate; whether it's worth it to collect that data would be debatable.

FYI, even the people who aren't *selling* pirated software/music -- the people who are simply *giving* it to their friends -- cut into regular sales. There's some debate over whether those gifts then get people to buy legitimate product -- but, again, that then assumes that there's an incentive to pay for the legitimate product. In the US, there may be (though, with the proliferation of MP3 players, not so much any more); in Russia, I'm not so sure -- unless, again, the anti-piracy laws are enforced. Too easy to get the pirated version.

It's all about the incentives.

My final comment of my post probably gave away my views on this discussion. When the music and film industries treat the consumer with the respect that he is due as the purchaser of serivces then anti-piracy legislation should be enforced.

Until then consumers will vote with their wallets. The approach above suggests that buyers are entirely logical i.e. if the same good costs less in one location than another - even if it is illegal - then buy the cheap version. I disagree with the premise; provided that the ease of purchase is the same and the goods are relatively closely priced.

I stand by my assertion that in Russia today a consumer is not going to pay the same for a video as he would in the US. Look at the price of a Big Mac in Russia versus the US.

First, I agree completely that the Russian consumer is not going to pay the same price for a video as a US consumer. The Russian consumer is now used to easily getting low-cost videos, and, until disposable incomes are the same, will still want to buy as many videos.

Next, I also agree that the music and film industries act pretty idiotically about this stuff; they way overcharge for their product, and they appear to feel entitled to overcharging since they've gotten used to feeding at this particular trough. It's why there's so much piracy, even in the US: the legitimate cost for the product is so much higher than the value most people put on the product, yet people still want the product. So they pirate.

As to the same-good discussion, first, we have plenty of examples of how people will look at two different competitors and buy from the less-expensive one. I do this with the petrol for my car all the time. If I know I'm going to a town where the gas tends to be cheaper, I wait and fill up my tank when I'm in that town. If I see a petrol station that has the same BP petrol at a lower price, I buy there instead of at the place near my flat. And, I've noticed that, pretty quickly, the petrol station near my flat will drop its price to be in line with, or really close to, the stations I'm otherwise frequenting. Same with groceries, shipping, anything that's just about a commodity.

My argument above (I'm the same anon) was that, if the laws *aren't* enforced, then the illegal aspect doesn't matter as much. The supplier has to be worried that s/he will be caught, and the consumer has to be worried that *s/he'll* be caught. If they're not worried, the law might as well not exist. Kinda like speeding in the US. People do it all the time, because the chance of getting caught is small. So ... you don't really worry about it. And, interestingly, even though *everyone* knows it's illegal, plenty of people think that they are *entitled* to speed and get upset if the police pull them over (this is why one of the easiest ways to get out of a speeding ticket is simply being polite).

And, trust me: in the US, there's still quite a bit of piracy. I happen to know students at one of the local university, and I can have a pirated copy of just about any song I want within 24 hours, at the outside (that's assuming it takes awhile for me to get them to call me back). Most movies, too. If it's already out on DVD, I can get a full-blown DVD copy; otherwise, it might be one of those cheapo copies from a hand-held videocam (at which point I'll wait for the full DVD, because I like the quality better). I *don't* do this, but that has more to do with the fact that iTunes is easier and still relatively cheap, and that I don't watch many movies, than it does with any lack of availability.

If I have two suppliers for the same commodity, and there's no drawback for my using the cheaper one, then I'll use the cheaper one. Logic or not, it's easier, and I can then go buy that Big Mac I want (actually, I prefer Wendy's, so I'd get a single). If the setups on the street disappear because of anti-piracy legislation, then it's harder to buy the illegal copy and there's a more visible demonstration that the government is enforcing the legislation, so I'd be more likely to think about going to a music store and seeing if it's worth it.

Again, I agree: the consumers in the two countries aren't going to pay the same for a CD or DVD (even if they *do* pay the same for IKEA furniture, and the average purchase total is the same in Moscow as in the US -- as reported in the Moscow Times a few weeks ago). And I agree that, if the ease of purchase is the same, and the prices are close, then people will tend to go for the legal version -- assuming that they believe the laws may be enforced. And I agree that the music and film industries are absolutely trying to charge way too much for their product, which is why so many people turn to alternative sources (though I must admit that, if someone offered me a ticket on that gravy train, I'd be on board in a heartbeat -- money ain't nearly everything, but it sure is nice to have). My contention is that they do lose some sales to the pirates, because people don't believe the laws are enforced (which, from what I've read, they're not) and, thus, buyers don't see any reason to go to the trouble and expense of buying legal copies.

All *that* said -- thanks for your blog; it's nice for those of us on this side of the pond to be getting news from the rest of the world (the US can be kinda myopic, to say the least).