This is something everyone that talks about this topic needs to understand. Basic economics teach us that an infinite supply comes at the price of (near) zero. The amount of music, movies, software (products) that can be distributed is only limited by technical issues, such as the amount of bandwidth and hard drive space. So naturally distributors should expect their product to have a lower price than it once had, especially when selling online.
Of course this leaves out the production costs entirely and probably a whole lot more. I'm not an economist, but I think this is a fatal flaw in the business model of most entertainment companies.
Can you elaborate on that? If there's an infinite supply of something and say, a demand for that product with 20% of the people, wouldn't the situation be worse for the entertainment companies?
I left the costs etc out of the equation, which is obviously a wrong thing to do.
The supply and demand curves are independent variables derived from distinct data sets.
From Wikipedia:
. . . supply is determined by marginal cost. Firms will produce additional output as long as the cost of producing an extra unit of output is less than the price they will receive.
. . . demand curves are determined by marginal utility curves. Consumers will be willing to buy a given quantity of a good, at a given price, if the marginal utility of additional consumption is equal to the opportunity cost determined by the price, that is, the marginal utility of alternative consumption choices. The demand schedule is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time.
In my experience, the pro-piracy argument from economics is at best an imperfect understanding of supply and demand and at worst, the person making the argument just heard the words "supply and demand" and filled in the rest from his own imagination. The "Law of Supply and Demand" is not an actual thing. It's the juxtaposition of "Law of Supply" and the "Law of Demand"
Supply (as opposed to the supply curve) is dictated by demand, not the other way around. If the demand for a good rises, then supply will be increased to meet the demand. If demand for a good drops, supply will be decreased to the level of demand.
To your question, the entertainment companies are under no illusions that the demand curve for any particular product is going to stay the same. They expect that over time, the demand for any given thing will decrease. They know that Britney Spears new album will sell a shit-ton of copies for the first week after it drops and by the same time the following year, everyone who wanted it will have it and sales will be virtually non-existant. Their business model is geared toward a limited lifecycle for any given product, which is why they make continual investments in new products.
Of course this leaves out the production costs entirely and probably a whole lot more. I'm not an economist, but I think this is a fatal flaw in the business model of most entertainment companies.