Income and Information


The chart above shows that poor nations steal more software than rich nations. It appears in a wonderful paper by Hal Varian that illuminates the nature of markets for information goods.

Is that chart an indictment of the moral fiber of poor nations?  Or, is it a sign of skillful  differentially price their goods?  Is the Chinese spending the same percentage of their GDP on goods from Redmond and Hollywood as the English?

Maybe this is about network effects.  Popular movies and operating systems have strong network effects. Firms selling such goods ignore large, but cash poor, markets at their peril. If all of China don’t adopt the products of Hollywood and Redmond then something will arise in their place.  What ever that is, it will become a problematic competitor. To paraphrase the aphorism: when it comes to network effects idle markets are the devil’s play ground.
Ok, so today in the WSJ we see them ragging on China:

“High on the list of irritants are discriminatory regulations, rampant piracy of American software and movies, and barriers that keep U.S. banks and other service companies out of China…. “

I was first reminded of that chart, but secondly I was amused to note: “Be careful what you wish for.” China might be able to use strong enforcement against piracy to create a trade barrier that helps assure that their home market for goods with strong network effects is, in fact, harder for overseas firms to enter.

Leave a Reply

Your email address will not be published. Required fields are marked *