Ending Piracy Using the Big Mac Way?
I was reading the Today newspaper dated 27th November and there I read a published letter by a person on one method of ending rampant [tag]piracy[/tag] of [tag]music[/tag], movies and computer softwares.
He was saying that no matter how tough the enforcement of the piracy law is, piracy will not go away easily. Well, in [tag]Economics[/tag] term there is such a thing called demand for such pirated goods due to the cheap prices offered relative to the original products. And when there is a demand for such products, there will be people willing to take the risks (in this case fines and jail terms) to supply these products to earn profits.
The average guy down the street will feel that they are being ripped off by the huge companies for charging a very high price for their products and will resort to pirated goods to offset the high costs.
As such, the author suggested using the [tag]Big Mac[/tag] type of [tag]pricing[/tag] for these products to make them more affordable for the average person in different countries. When original products are more affordable for a significant majority of the population, people will be more inclined to buy original products thus lowering the piracy rate. Of course this have to be coupled with education on respecting intellectual property, but the current tactic of using only education and law enforcement is not very effective because it doesn’t deal with the affordability aspect of the problem.
The author goes on to continue giving example of how the Big Mac is priced differently in different countries although it is supposed to be the same size and have the same ingredients. For example the Big Mac costs S$3.60 in Singapore but across the Causeway in Malaysia it costs only S$2.40. In the US, it is S$4.70 while in Switzerland, it is S$8.20.
The Economist magazine also has a Big Mac index to measure the different prices of Big Mac around the world. It is based on the economic theory of [tag]Purchasing Power Parity[/tag] (PPP) to see how a certain amount of money can buy different amounts of goods in different countries. But their main function of the Economist’s index is to measure how a certain currency is undervalued or overvalued. It takes the US dollar as a benchmark to compare the Big Mac prices and it found that certain Asian currencies are undervalued by as much as 40-50%.
Source: http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005
Continuing on, what the author suggest is pretty much feasible. If McDonalds can do it worldwide and charge a different rate for the same product (Big Mac), why can’t the music, video and computer software companies implement the same thing?
They can charge different prices for the same product in different countries thereby making their products affordable for the masses. Then, they can all stop bitching about rampant piracy cutting their margins.
I believe this is a very reasonable idea to be adopted. Price Discrimination as they may call in Economics where producers charge different prices for the same product. Companies practise it all the time. But why can’t they use it for this purpose. Book producers do it by charging a cheaper price for text books for sale in Asian markets but a higher price in European markets. At the back of the book you see a small note: For sale in Asian markets only.
Well, Economics text books say: For Price Discrimination to occur, the supplier must have monopoly power, there must be a segmentation of the market, resale of the product must not be possible and the demand elasticity of the product must be different.
In this sense, the music, video and computer software industry satisfies all these 4 conditions.
In fact, by using this method, the producers will be able to increase revenue and profits. Although the producers will earn less for every product sold, but because the product is [tag]price elastic[/tag] in [tag]Asian[/tag] markets (Asians are very price conscious and will buy the cheaper alternative [also dependent on level of respect of intellectual property]), the overall decrease in prices will result in a more than proportionate increase in products sold. And as a result profits will increase. To make profits for the companies even bigger, they can further price discriminate internally within a country. They can charge consumers a lower rate. Companies and government that uses the products for commercial purposes meanwhile can be charged a higher rate.
I am very puzzled while such a simple idea cannot be implemented by these huge companies. Why can’t they work with the [tag]free market[/tag] and undertake policies accordingly? Instead they are focusing all their efforts in bitching to governments to enforce piracy laws etc.
[tag]Record companies[/tag] themselves are passionate about price discrimination. In fact they are pushing to practise [tag]price discrimination[/tag] in the online music trade world. As we all know, Apple’s iTunes Music Store charges US$0.99 for a single download of song. However, record companies are pushing for flexible pricing. It wants iTunes Music Store to charge newer songs at a higher price and catalogue materials for less.
Source: http://www.engadget.com/2006/04/21/apples-itunes-pricing-to-stay-at-99-cents/
Why want to price discriminate in the US but not in Asian markets? Even for the 99cents a download, it is pretty much expensive for the average Asian consumers.
Take for example the average music CD price. In Malaysia, the average music CD costs RM40. In Singapore, it is around S$20 while in the US it is around US$10.
Assuming the average pay of the average worker is RM2000, S$2000 and US$2000 in the 3 countries, one will easily understand why piracy is more rampant in Malaysia and almost non-existent in the US. This is because to buy an average music CD, it costs 2% of the average Malaysian pay, 1% of the average Singaporean pay and 0.05% of the average American pay. You see, the proportion of income spent on music CD will be much higher in less developed countries. This is related to the Economist’s PPP because currencies of less-developed countries tend to be undervalued to the US dollar.
Big Mac is priced differently in different countries to make it more affordable for the average man. Yet, we have not heard of McDonalds complaining of low sales because it is not affordable.
Yes, it does not suffer from piracy situation, but it does have many local competitors who offer similar burgers at a cheaper rate.
Yes, I would agree that pirates sometimes can duplicate a product to such great quality that sometimes one cannot disseminate the differences of an original to a pirated product. But things can be further improved by educating the public on intellectual property. However, people will not resort to original products if the price difference is too massive.
One question for all of you to ponder: Why do book publishers rarely complain about piracy, in this case students photocopying their books? Because first the practise price discrimination according to regions and more importantly they offer value-added products. They offer more information on their websites, CDs with more programs, softwares, online tutoring, online mentoring, online marking and the list goes on.
Yes, I would agree that the cost of producing the goods will be similar although the selling price will be lower in most Asian countries. However one also has to consider that the cost of promoting a product will also be lower in Asian countries and the possible benefit of eradicating piracy in the long run.
In conclusion, by using the Big Mac style of pricing, products will be significantly affordable for the average man in different countries. With continuous education and campaigns on the need to support intellectual property and law enforcement by the police, I’m pretty sure more and more people will soon resort to buying original products and piracy rates will go down.
My friends and I have been talking about this topic many years ago. Not that we know about economics, but we all hope that software companies will consider doing what McD is doing.
However, people may abuse this pricing structure. One may buy products like CD or software in India and sell it to others in Europe. No one will do that with Big Mac because by the time it reaches Europe 2 days later, it is already gone bad.
Look at Nike sports shoes. Its price is about 30 to 50 pounds a pair and the conversion is done accordingly too when it is sold in Malaysia. In fact, don’t forget most Nike shoes are manufactured in Indonesia or China.
So, in this case, not every product can follow Big Mac method (though we would love to).
Wow. Semangated. Okay, so I’m a pirate, too. But I have to agree. I love originals. I used to get them. Till they got too expensive for my tastes. Thing is, I’m not too big a fan of pirated CDs, too. Torrenting’s the way to go. I know it’s pretty much the same as purchasing pirated CDs but at least it makes me feel like I’m not helping our local pirates out. That makes me only halfway bad. Self deception rocks. =)
Good post, btw.
mun>>hmmmm quite true what u said abt ppl profiteering…gotta think of a solution to this prob…
pamsong>>i would also much prefer to use original products but they are just too overpriced….
Was about to post what Mun said.
That’s why there’s such a thing called regional coding for DVD’s
Hey there this is a really interesitng post, especially your incorporation of economic theories in your argument… it made me flip through my J1 economics notes to clear things up, since I’ve forgotten like 90% of my JC stuff after the A Levels
Ah wells monopoly power is a must for price discrimination, but it is really hard for record labels to have a complete or a significant control over the market due to the presence of people who still copy and redistribute music and films. The only way to ensure complete control is by using some anti-copying technique, which needs a great deal of, gasp, research and development.
Market segmentation is another hurdle to across, because judging the current world situation it isn’t prohibitively hard or expensive to transfer CDs or media files across borders. People could burn music or films into portable harddrives, so checking for hidden CDs in tourists’ luggage still doesn’t really work. The only way again is to devleop some kind of technology that prevents copying of media files from authentic CDs / DVDs.
Just my 2 cents, anyway.
I got the same thought as Mun, and the way to counter it, maybe to print a wording on the cover, like Malaysia edition, or Singapore Edition, or “For sale in Malaysia” or what. This is obvious and if someone sell it, people will know it, like Twisties in Malaysia and SIngapore. Some rich bastard rather get “US Edition” than Malaysia Edition, because it feels more class. Who wants China Edition? No one.
About Software piracy in Malaysia, not because software is expensive, but most of the people don’t know to differentiate original or pirated, as the quality is the same, plus there is only a few percent of Malaysians are computer literate, even government computers using pirated Windows, while the other hand keep singing “Guna IT~~”. The only way to overcome is education and publicity. In most Malaysian’s mind, pirated only happen in t-shirt and vcd and dvd. Software? They don’t know.
Add some:
Even government is doing some work, like cleaning the pirated vcd selling, and ask people don’t buy it, people will just blame government because they thought government try to suck their wallets. What government need to do, is to explain the reason why pirated should not happen,(because it’s like stealing people’s creation, although not in physical form, but still people’s idea).
I admit in my PC not fully original software, like Adobe Flash and Photoshop, but I am trying to use legal way to get required software, like getting from MSDNAA or using open source, for more important software like OS, I spent RM800 for it, not because I am rich, is I realise the hardwork that require at the background to develope this OS for 5 years, and perhaps I am a software engineer in the future. And if counted everyday, if I use it for 5 years, everyday I just pay RM0.43, much lesser than Astro RM2 subscription per day.
luzzio>> yeah good suggestion u have abt regional coding….perhaps they should incorporate it….then it solves the prob of ppl buying at lower priced counties n selling it at higher priced countries.
teddy>> music producers do have monopoly power. there’s only a few big music labels like BMG, universal, EMI….it’s basically a oligopolistic market structure…if they band together to research on some anti-copying technology plus perhaps the regional coding technology, it could be implemented….
then if ppl buy a cd in china, they might not play it in US….
vhanded>> gov comps using pirated softwares? u serious? yes i agree that we must have education/campaign to educate the public on respecting intellectual property….but i’m trying to solve piracy using the free market way….coz even with education, piracy will still persists bcoz the products are too expensive to be bought by the average person, thus in dollar and cents sense, he /she will make the more affordable decision. currently the gap btw ori n fake is too big. it’s a no brainer. but if it’s small enough, then ppl will respect IP