Artificial Scarcity

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From the Wikipedia at

"Artificial scarcity describes the scarcity of items even though the technology and production capacity exists to create an abundance. The term is aptly applied to non-rival resources, i.e. those that do not diminish due to one person's use, although there are other resources which could be categorized as artificially scarce. The most common causes are monopoly pricing structures, such as those enabled by intellectual property rights or by high fixed costs in a particular marketplace. The inefficiency associated with artificial scarcity is formally known as a deadweight loss.

An example of artificial scarcity is often used when describing proprietary, or closed-source, computer software. Any software application can be easily duplicated billions of times over for a relatively cheap production price (an initial investment in a computer, an internet connection, and any power consumption costs). On the margin, the price of copying software is next to nothing, costing only a small amount of power and a fraction of a second. Things like serial numbers, license agreements, and intellectual property rights ensure that production is artificially lowered in order for business to gain a monetary benefit, thus giving businesses an incentive to produce software. Technocrats argue that if the the price system were removed, there would be no personal incentive to artificially create scarcity in products, and thus something similar to the open source model of distributions would exist." (


ZikZak: Why Abundance is Destroyed


"It's not a mistake or an accident that abundance is destroyed. Profit-oriented institutions depend on scarcity, so when it doesn't come about naturally, they manufacture it.

Most excess food, clothing and other valuable goods don't just "spoil". They're actively destroyed by producers or retailers, because putting them to useful purpose by making them available to people would undercut the scarcity on which the producers and retailers depend to turn a profit.

It's a fundamental contradiction of late-stage capitalism. The market has succeeded in creating huge overabundance such that everyone could have as much as they need, but this abundance undermines the success of key players in the market. So they have to do additional work just to re-create an artificial scarcity in order to continue profiting from an outdated business model." (


" I'm fairly experienced at sifting the waste flow of corporate America, and I've been a part of many attempts to divert the useful things in that waste towards useful ends like homeless shelters or free food programs. Sometimes this works, but more often than not, these arrangements result in hostility from retailers and distributors.

I'm talking about arrangements as simple as "hey, when you throw all that stuff away, we'll come by and pick it up to give to the needy, ok?" No moving, storing, sorting, or distribution required on the part of the company - as you suggested, all of that is provided by volunteers. Really, all that's required is that they keep doing what they always do and leave us alone when we come to pick up their excess. They could even get a tax-writeoff for the "donation".

Instead, we get companies hiring security guards specifically to thwart the reclaiming of excess goods. I'm talking partly about dumpster divers, but also of attempts by employees to divert waste to food banks or charities before they end up in the dumpster. There's an entire security structure that's devoted to ensuring that excess goods are destroyed. I know people who work in retail who are required to load all the excess, returns, and "imperfect" goods into a trash compacter and then crush them with the manager watching, lest someone end up getting value from some bit of that excess.

This kind of waste is not a problem of lack of coordination. In fact, it's not a problem at all for the people who control and operate large businesses - it's a deliberately constructed situation. Unfortunately, it will take a lot more than better systems of coordination to change this dynamic. It will take a shift in how we relate to our economy and what we expect it to do for us." (


Some would say that while non-rival goods like information are not inherently scarce, rival goods like oil are. I disagree. There is the amount of oil that there is. It is neither abundant nor scarce. It just is. What makes us perceive oil as scarce are the humsn systems we have built that create a context for it. (

Strategies to Induce Artificial Scarcity

JP Rangaswami:

" When it comes to digital assets, there are four primary ways to try and create artificial scarcity:

1. Sell the rights to digital things on a territorial basis, and then sue those who seek to overcome those territorial barriers. The Karen Murphy case is just the example of the day…. the Bosman ruling in football was a similar case in point; every attempt to enforce gardening leave may also be seen as an attempt to restrict the freedom of the individual.

2. Encrypt the assets regionally, as done with DVDs and some classes of video games. [As I've stated so many times before, region coding on a DVD is the best example I know of a technological invention adding zero value to the customer or her experience].

3. Slice releases of digital assets not just over geographies but over time as well, drip-feed the releases into the world, again to protect a historical business model. I reviewed a Hugh Macleod book a couple of days ago, and a UK reader pointed out that the book will not be available here for a few months. Hugh, the author, saw the comment and confessed that the publishing world seemed to insist on working that way.

4. “Lock” the assets to a particular device, provider, connection type. If you want to watch Premiership football, you must buy from Sky Sports. Or for that matter iTunes and iPod. That kind of thing. Walled gardens." (

Roberto Verzola on the CounterProductive Laws that Induce Artificial Scarcity

Roberto Verzola:

“By “counter-productive”, I refer to laws which undermine, suppress or otherwise diminish the production and exchange of goods and services. Sometimes, such laws start off with good intentions. But when some powerful economic interests get disproportionate benefits from such laws, these get expanded, enhanced, or extended far beyond their originally-modest intentions. The “intellectual property” laws discussed in earlier blog entries as well as in several essays in the book Access to Knowledge in the Age of Intellectual Property (Zone Books, 2010) are of this kind. Other counter-productive laws include those that restrict access by low-power community broadcast stations to the radio spectrum and laws that restrict the rights of farmers to commercially-distribute their seeds.

If the vested interests benefitting from them are powerful enough, these laws can become international in scope or get deeply entrenched in constitutional provisions, making it even more difficult to change them.

Developments such as Trade-Related Intellectual Property (TRIPS) Plus, the spread of plant variety protection, the introduction of software and life-form patents, the Anti-Counterfeiting Trade Agreement, and similar efforts indicate that such counter-productive laws continue to get expanded, enhanced and extended. The screws are getting tighter.

The book cited above includes my essay “Undermining Abundance: Counter-Productive Uses of Technology and Law in Nature, Agriculture and the Information Sector” (p.253), which explores further how law as well as technology can be used to undermine potential, incipient or actual abundance in goods and services.

Writing this essay has been life-changing for me. It led me to a deep study of artificial scarcity and the wellsprings of abundance. I saw how most of mainstream economics today sees only half the picture: it has made a very detailed study of scarcity, but has hardly touched on the concept of abundance. I found the subject so compelling that at age 56, after submitting the essay in 2008, I went to graduate school to study economics again. In school, I confirmed what I already knew from my readings: abundance seemed to have no place in mainstream economics, and scarcity remained a fundamental assumption.

Thus, the essay has grown into a thesis: that economics should be the study of scarcity and abundance.

Years from now, I hope, all schools of economics will teach the complete picture, that economies are shaped by the dynamics between scarcity and abundance and that economic development means moving from scarcity towards abundance for all.” (

More Information

  1. Herman Daly on the Tragedy of Artificial Scarcity
  2. See also the entries on Abundance vs. Scarcity