Sneaking into the club

Date: December 12, 2024

Club goods are what the economists call a particular intermediate between public and private goods. Some examples:

• satellite radio broadcasts
• music, movies, software, any digital files protected by copyright
• beaches
• seats on an uncrowded train

Unlike private goods like food and haircut appointments, they’re non-rivalrous, meaning one person’s consumption doesn’t affect other people’s enjoyment of them.^[1] Unlike public goods like lighthouses and national defense, they’re excludable, meaning it’s possible to charge for access.

But why exclude someone from something that costs nothing to share? Are people doing it to be mean?

Why charge for club goods?

Although club goods have zero marginal costs—one more person downloading a song or streaming a movie doesn’t increase production costs—they aren’t free to create. The producers need to be able to capture some value to recoup their investments; to do this, they must charge. Ideally, they would charge people according to the benefit they derive, but in practice it’s difficult to determine that benefit and price discriminate accordingly.

Piracy

Most people in my generation don’t object to piracy (a loaded term, given the non-rival nature of digital files). If they don’t pirate, it’s more often due to the worse experience than a strong belief in intellectual property.

Digital files are the quintessential club good. We make things artificially scarce when they could be free for everyone! Why?! Look no further than the U.S. Constitution:

The Congress shall have Power [...] to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

In other words, copyright and patents exist so that authors and inventors can be remunerated for their works when others find them useful, and thus incentivized to create them to begin with.

Congress has at times stretched the meaning of this clause by extending the term of copyright well beyond any period which would be necessary to act as a reasonable incentive. Is there any author who is moved to create by the thought of their great-great-great-grandchildren raking in royalties 70 years after their death? Not to mention that term extensions were made retroactive, an act which could exert no possible motive on the dead creators whose estates benefitted. No, this is pure rent-seeking from corporations who seek to milk their artificial monopolies for as long as they can convince the government to grant them.

Ethics

• Suppose a movie is showing at the theater. You’d pay up to $5 to see it, but tickets are $15. If you went on a Tuesday afternoon there’d be plenty of open seats; you could sit in the back without blocking anyone’s view.^[2] Nobody is worse off for you doing this; the movie theater doesn’t get ticket revenue but you wouldn’t have paid anyway. Is this wrong? If so, who is being hurt?
• You’re unemployed and can either pay $3 to take the bus or walk for 20 minutes. You don’t mind walking much but would take the bus if it were free. You decide to only tap your transit card half the time; the bus driver either doesn’t notice or doesn’t care.
  • You buy a coach class train ticket. Most of the comfier first-class seats in the next car are empty, so you sneak past the conductor and take one. You wouldn’t have paid extra for it, but why let it go to waste now?
• You wouldn’t pay $45 for a museum ticket, since you expect you would only get $20 worth of value out of it. You decide the fair thing to do is to sneak in and split the surplus between you and the museum by donating $10.
  • At the end of your visit, you decide it was better than you thought and leave $15.
  • The visit is worth $50 to you; you decide the pricing is unfair because you hardly get any surplus (read: it’s expensive but you’d probably pay if it came down to it). You sneak in but donate $25.
  • The visit is worth $100 to you; you pay for a ticket and don’t donate an extra $5 to split the surplus. You feel you’re under no obligation to price discriminate against yourself and pay more than required.
• You want to accomplish a one-off graphic design task worth $50. You could download an open source program that would take a while to figure out how to use, or pirate the $300 industry-standard software you learned in school. You pirate it without remorse because screw the greedy corporation, this is what they get for trying to rip you off.
• You’re a fan of Taylor Swift and several indie artists. You know she’s a billionaire and think billionaires aren’t taxed enough, so you pirate 20% of her music and donate it to pay down the US national debt.
  • …and spend it on the indie artists who surely need it more.
  • You don’t want to support Big Machine Records because you think they’re mistreating Taylor, so you buy the re-recorded Taylor’s version to support her, though you like the old versions better so you still pirate them to listen to.
  • You’re an effective altruist and you determine that children in Nigeria need mosquito nets more than your favorite artists need the money, so you pirate everything and donate an equivalent amount.

Considerations

I think these are the questions you should ask when thinking about “sneaking into a club”:

• Are you detracting from the experience of paying customers? Is this truly a club good, or could it be private? Is congestion a concern?
• Would you pay if you had to? If so, refusing to pay amounts to free-riding and jeopardizes the sustainability of the good.
• Does it set a bad precedent? Will your flouting of the rules be seen by others and lead to a breakdown in social trust, or more sneaking in by those who would otherwise pay?

[1] Sometimes you have to consider congestion, but in this post I’ll assume that that’s negligible.

[2] Note that this scenario wouldn’t occur if perfect price discrimination were possible—more on that in a later post.