When supply exceeds demand

Tim Lee has a wonderful take on Chris Anderson’s The Long Tail. The punchline, in my estimation:

When supply exceeds demand, as it seems to for both music and punditry, the equilibrium price is zero.

I think to be technically correct “at p=0” needs to be inserted before the first comma, but nevermind, read the whole thing.

19 Responses

  1. Supply does not exceed demand (a fallacious oversimplification).

    1) The administrative costs, of collecting and communicating demand to suppliers, (currently) exceed the value of that which is demanded and can be supplied.

    2) Free supply as a loss leader is a cost effective self-promotion mechanism.

    At the moment, people are self-promoting (publishing free content) in the hope that they may build up demand for themselves to such an extent that it becomes cost effective for the major channel owners to procure their services. People are still gambling on the ‘star system’.

    Traditionally, people pay 99% for delivery and 1% for content.

    If people just need to pay 1% for content, because delivery is free, then clearly, we can no longer bundle the price of content into the delivery fee.

    We need a new, far more efficient revenue mechanism for digital art.

  2. Tim says:


    I couldn’t possibly read all the blogs on the Internet, even if I only restricted myself to the extremely well-written ones on the specific subjects in which I’m interested. Is that not supply exceeding demand?

  3. Supply of crap exceeds your demand for quality.

    Only in that respect can supply be said to exceed demand, which is pretty silly – and not at all true to the proper sense of the phrase.

    Supply of tracks by Madonna exceeds my demand for tracks by Elizabeth Fraser.

    And yet, I’d pay good money to have more of the latter, and possibly even for less of the former.

    You demand those very few quality blog articles that are actually worth your time to read. You have a demand for a blog, for which there is little to no supply. Finding such a blog (a blog specifically tailored for one reader: Mike Linksvayer) may be tricky, but when you do find blogs that get close to it I suspect you’d be happy to put a few coins their way.

    The mistake of believing the canard that ‘supply exceeds demand’ is to fall into the publisher’s dismay that ‘supply of content’ exceeds their demand for it. Publishers are box shifters. The long tail is not about publishers to the masses (lowest common denominator audiences), but people – individuals. Individuals have unique interests, and very few suppliers.

    Addressing the long tail is about creating far more efficient mechanisms that bring a thousand peculiar punters in touch with that rare 1-in-a-billion artist who supplies what they demand, and enables them to perform a monetary transaction with them, i.e. art for money, money for art.

    It’s not about selling copies, it’s about selling art.

    Copies are now free. Art remains just as expensive as ever. Audiences remain just as demanding as ever.

    Publishers are the ones in trouble, not art, artists, or audiences.

  4. Crosbie, I think you’re incorrectly assuming that the goal of most art production is financial reward, somehow, sometime. If that were the case it must be true that most artists are deluded or retarded.

    That said, I’m all for the sorts of voluntary funding mechanisms you’re pursuing. Of course the music market is not homogenous. For some artist submarkets equilibrium price is not zero.

    Likewise, some bloggers would not write if not for advertising revenue. Consumers pay by putting up with the ads.

    Still, supply exceeds demand at p=0 is true for a huge portion of the market(s) (obviously not measured in terms of revenue!) and Tim’s point highly illustrative.

  5. Apologies, I should instead have said “a blog specifically tailored for one reader: Tim Lee”.

  6. No, Mike, I have not, and have never assumed the goal of most art production is financial reward. How on earth can you cast such an aspersion?

    I am simply developing revenue mechanisms that facilitate financial reward for those artists who would permit their audiences to provide it.

    I’m not saying one cannot easily specify cases where supply exceeds demand, e.g. the supply of sea water to sailors who like drinking it. Or spam to those who like reading it, or even the number of blog articles covering notable news items, to those who don’t want to read about the same item twice.

    I’m saying the long tail does not represent a situation of supply exceeding demand QED no-one can make any money selling snow to Eskimos.

    I don’t know about you, but I’m always experiencing a shortage of music I like. I also find a shortage of pundits I can rely on to provide 99% worthwhile reading. Quite a few 50% pundits, and thousands of 10% pundits.

    Certainly a surfeit of blog articles, but I have little to no demand for mere blog articles. I have a demand for consistently good blogs – of which I find very few.

    If you demand crap, there is an excessive supply. But, then I’d readily agree that crap isn’t worth paying for. However, one man’s piece of junk is another’s gem. It’s finding and commissioning gems that’s the problem.

    The long tail may be 99% crap to 99% of people, but the other 1% of it is priceless to 1% of them.
    Don’t make the mistake of looking at the long tail and seeing 99% crap. It’s 99% priceless! ;-)

  7. Crosbie, aspersion retracted, sorry. Perhaps I read too much into your “loss leader” comment.

    You must be a more discerning consumer than I, and I have very narrow tastes.

    RIght now I know of enough mindblowingly great music that I could do nothing but listen to it for decades.

    Like Tim, I find more quality blogs on topics I’m interested in than I have time to read.

    99% of everything is crap and 99% of the rest is mediocre. The thing is there’s so much “stuff” that I could live many lifetimes and never voluntarily experience crap. This is a major reason I want life extension. :)

  8. This blog entry has a pretty clear economic context. My comments were made in that context, i.e. the economics of art supply and audience demand. They are just as valid with an assumption that most artists are entirely uninterested in financial reward, and would reject it if offered, for fear of corrupting their artistic independence. I’m talking about the economic outlook for that peculiar minority of artists interested in monetary reward.

    It’s good that you are amply satisfied by freely available art.

    However, could you conceive of a situation where there was an artist whose work you particularly enjoyed, and this artist at some point announced that they would be obliged to reduce their output considerably in order to start a family for which they’d need to find a paid occupation?

    Could you be interested in persuading them to continue – in even the tiniest monetary amount? Or would you be quite uninterested given that you’d find a ready supply of art to take its place?

  9. Tim says:

    “You demand those very few quality blog articles that are actually worth your time to read. You have a demand for a blog, for which there is little to no supply. Finding such a blog (a blog specifically tailored for one reader: Mike Linksvayer) may be tricky, but when you do find blogs that get close to it I suspect you’d be happy to put a few coins their way.”

    This just doesn’t bear any relation to the real world. There are dozens and dozens of brilliant, timely, well-written blogs on subject I’m interested in. My current blogroll has about 80 blogs, the majority of which I think are excellent. Of the 40 or so excellent ones, I probably only get time to follow about 20 of them in their entirety.

    And I didn’t have to look hard at all to come up with my list of 80. I guarantee you there are dozens more gems I haven’t found yet. Over time, my blogroll will get bigger, my standards will get higher, and the fraction of my blogroll that I’m able to actually read will continue to decline.

    Would I pay money to get access to great blogs if I had to? Sure. But the fact is that I don’t have to. And that’s not likely to change. People publish blogs primarily because they like having others read them. So the demand creates its own supply. Both writer and reader benefit from the process without any money changing hands.

  10. I am amply satisfied by extant works, not typically freely available, not even on filesharing networks.

    I can conceive of becoming a patron or investor. I’m extremely interested but skeptical about particular schemes, see my public goods category and this one in particular. This one explains why I like Tim’s framing so much.

  11. This is why I mentioned the ‘loss leader’ of self-promotion.

    People cannot pay their mortgages based on mere adulation.

    You may believe there is ample free/promotional content that no reader need ever pay another cent for good writing.

    However, as you know, you have a very limited (valuable) amount of time and attention in which to select, discover and enjoy your artists.

    Consider that the free ‘content’ is actually payment for your attention or consideration.

    You have a demand for content that is worth your attention. This creates a market for those who would propose their services as a broker of such content, i.e. someone who is a reliable source for content worth your attention.

    Are you currently satisfied that all of the content you read is the best possible content you could have read in the time you have available?

    You may be able to afford to perform the selection work yourself. Alternatively you can pay someone else.

    There may well be more reading material you’d find agreeable than you could read in a lifetime, but that doesn’t mean you don’t have a demand for a good selection – that someone could supply you with.

    Some people think that we have a future of mediocrity, because no-one will pay for anything better if the mediocre is free. And yet people still go to the movies despite freely available soap operas. Demand for fine wines wouldn’t stop if table wine became free.

    The blind spot is that people don’t know how digital art can be sold if the copies are free.

    The art is not the copy.

  12. Tim says:

    Blogs already combine the roles of content producer and filter. My favorite bloggers aren’t only the best writers, but also the ones who do a good job of finding interesting material for me to read on blogs that they read.

    Moreover, much of the filtering process can be automated, as sites like digg and Google do. People like to share their recommendations just as much as they like to share their own creations.

    Look, I’m not saying that no one will ever pay for content again. Clearly there are some categories of content for which people will continue to pay for the foreseeable future. But I think that in the future, the vast majority of punditry and music will be offered for free, because there will be far more high-quality material offered for free than the average user can possibly consume.

  13. Artists provide their portfolio for free viewing, by way of self-promotion.
    Some people, and I mean SOME people rather than most people, will be interested in commissioning the artist to produce more or specific works.
    Some artists currently offer themselves for commission to publishers (agents for mass audiences).
    Some artists will start to offer themselves for commission to their audiences (directly), i.e. disintermediating the publisher.
    This is not necessarily the majority of artists, or even the majority of those in their audiences, but some.
    No doubt there will be some people who cannot conceive of ever commissioning work from a particular class of artist, or even of any artist, and yet they quite happily buy computer games, music CDs, books or newspapers.

    We are seeing the decline of artists requiring payment for their work. We will see the increase of the audience profferring payment for the artist’s work. Same exchange. Different perspective.

  14. Tim says:

    That’s clearly true. My day job, after all, involves producing policy analysis on subject of interest to the funders of my employer. My reputation as a policy analyst clearly increases the value of my work to people who might pay me to produce work on a particular subject. Part of the motivation for writing my blog is to make myself a more widely-known and respective tech policy analyst so more people will be interested in hiring me.

    Clearly, the same will be true for others in creative fields. Many musicians already make a large fraction of their income from endorsement deals, and that’s likely to become an even more common revenue source as revenues from selling your product decline.

    However, I don’t see how that contradicts my statement that supply exceeds demand for most creative works. Paying someone to produce a particular work is different than paying for a copy of a work. I didn’t say that artists won’t be able to make a living–quite the contrary. I just think that they’ll do it by means other than selling copies of their work.

  15. “supply exceeds demand for most creative works”

    I really don’t know how you can sustain that statement.

    What supply and what demand?

    If you look at the wealth of creative works and say to yourself “There’s tons of good stuff out there that I might have once paid for, but now it’s free, and moreover the supply of it exceeds my demand for it” you may well believe that supply exceeds your demand.

    However, this was the case when anyone walked into a library. Millions of books – free to read. And yet most of the books in the library were produced commercially – for a financial return. And don’t forget it takes money or effort to figure out which books are the most worthwhile reads.

    For any given artistic work, the bulk of people will consider that they’d happily wait for it to appear in their library than buy it – ergo 99% of everything is valued by most people at $0.

    A tiny fraction of any audience is so interested in the artwork that they would glady consider paying money for it.

    Publishers have generally chosen highly popular works in order that they maximise revenue to cover their large overheads.

    The long tail means the audience size may be small, but there are still a fraction who would consider payment. Just like poor oil fields, publishers simply cannot recover revenue here. And yet, there are very few overheads (for digital distribution). In fact, after ‘discovery’, one of the largest obstacles is the decision cost on the part of any audience member (as to whether to participate in commissioning the artist).

    So, from the perspective of someone who sees a library of free books, supply exceeds demand. However, from the perspective of the author and the purchasers, supply does not exceed demand, hence for each book in the library the author supplied a product to meet an excess of demand.

    That is not to say that a lot of self-promotional works are jolly good, but then these were paid for by the artist to meet the artist’s demand for promotional material.

    And yes, in all this, I’m still only talking about the minority of artists hopeful for, or simply amenable to, a monetary reward at some point.

    You should not look at a library and decide that supply exceeds demand and that books henceforth cannot be priced higher than $0.

    Compare the situation with free software (as in GPL). Much of it was originally commissioned, and yet much of it can be obtained free of charge. The fact that you can get it for nothing does not mean that no-one valued it sufficiently to commission it.

    Similarly, the fact that something you may be interested in commissioning can become free of charge does not reduce its value to you.

    A future of free culture, does not render artists penniless (only traditional publishers).

    And you are correct here: “Paying someone to produce a particular work is different than paying for a copy of a work. I didn’t say that artists won’t be able to make a living–quite the contrary. I just think that they’ll do it by means other than selling copies of their work.”

    Absolutely. Artists will make a living by selling their work – not copies of it.

    But, you can’t sell if supply exceeds demand can you?

    I’d double-check your statement. Go back to the library and question whether it really represents a situation of supply exceeding demand.

  16. Tim says:

    The issue with the library is that you have to return the book at the end of six weeks. What you’re paying for when you buy a book is the convenience of keeping the book indefinitely. If libraries let you keep books, the price of books probably would fall to zero. (And because producing books has nonzero marginal cost, whoever was subsidizing them would eventually run out of money) What you’re paying for isn’t the copy of the content, as such, but the convenience of being able to keep it indefinitely.

    So yes, I was talking about i>copies of creative works being priced at zero. I didn’t mean to imply that artists will never get paid for creating original works. But I do think it’s the case that the norm, for music and for punditry, will be for creators to give away copies of their work for free once they’ve been created.

  17. “copies of creative works being priced at zero. I didn’t mean to imply that artists will never get paid for creating original works”

    Oh dear. It seems we’ve been trying to preach to the converted.

    And here I was thinking you believed that the long tail demonstrated that artists could never be paid for their art.

    The market for copies (duplicating binary digits), I think we both agree, is over.

    The demand for, and supply of, art remains unaffected.

  18. Oh, and Mike, the reason I subscribe to your blog is precisely because of your interest in this field. I have read most of the links you mentioned already.

    I’m not enamoured with dominant assurance contracts (as opposed to assurance contracts in general), but I am currently working on the Contingency Market that it just so happens would be able to support them.

  19. Crosbie, same reason I subscribe to your blog. :)

    I noticed that your software does/will support dominant assurance contracts and have it on my long list of things to evaluate.

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