The marginal cost of producing and storing an extra electronic copy of a book is almost zero. But the fixed cost is the cost of the writer’s time. Our mixed emotions about the ethics of copyright and violating copyright come from the tension between our feeling that things should have something close to marginal cost pricing and our feeling that authors and other creators should be compensated. Tim Parks captures these mixed emotions brilliantly in this New York Review of Books essay.

Cases such as electronic copies of books, where the marginal cost is essentially zero, provide great examples of how increasing returns to scale is incompatible with perfect competition. As long as the cost of writing a book is positive–

“No man but a blockhead ever wrote, except for money,” Samuel Johnson once remarked [quoted in Tim’s essay]

–there will be increasing returns to scale for electronic copies of the book. By reducing the price of an electronic copy of a book to zero, perfect competition would lead to very little writing of books where the cost of writing a book is positive. Hence, copyright law.

But where the cost of creation–net of benefits to the creator other than selling the zero-marginal-cost copies–is zero or negative, copyright law might not be necessary. Tim: 

If people only read poetry, which you can never stop poets producing even when you pay them nothing at all, then the law of copyright would disappear in a trice.

Eli Dourado, in “Why I Should Blog More,” argues persuasively that many forms of individual creation are in this category: things people would do for the many informal social benefits that flow to those who do something useful for society, even without any direct payment.

In reality, there are a wide variety of different forms of creative output that each have a different lineup of likely rewards for creators. (For example, Tim has a good discussion of the complex set of benefits one might get from writing a song.) With different forms of creative output that have different lineups of likely rewards often treated similarly in copyright law, it is not clear that we have struck the right balance. 

Update: Let me give you a few interesting links that also question whether we have struck the right balance in copyright law: