Paying for quality

Here's a music pricing scheme I've seen a few times: For one price, you get a piece of music in, say, mp3 format with a given bit rate. For a somewhat higher price, you get the same piece of music in, say, flac format with higher fidelity.

This seems a very interesting test case for the "information wants to be free" theory. Intuitively, better quality ought to be worth paying for, but on the other hand, copying either version is essentially free, so why should there be a difference?

Suppose the lo-fi version is free and the hi-fi version costs a zillion dollars. No one will buy the hi-fi version (and no one makes any money)

Suppose lo-fi is free and hi-fi costs a pretty penny. Most likely some copies will sell, but many more will circulate illegitimately. No one makes much money.

What if lo-fi costs a modest amount and hi-fi costs a bit more -- pretty much what we have in most cases? Quite possibly there will be some sort of equilibrium. Some people will pirate, but enough people will pay full price to keep the bits flowing.

My totally off-the-wall guess is that at the optimum, the proportions of pirated copies for the lo-fi and hi-fi versions will bear some simple relation to each other. On the other hand, it seems quite possible that no one will want to buy the lo-fi version no matter how cheap, if it's really bad, and conversely there's a point at which it's not worth paying for that last bit of signal quality.

The optimum price will depend on a number of factors, including local law and the cost of breaking it, demand for the particular piece of music, and (I tend to think) people's judgment as to how fair the price is and to what extent piracy hurts the record label as opposed to the artist.

When Stewart Brand said "Information wants to be free" he actually said

On the one hand information wants to be expensive, because it's so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other. [See here for example]

We don't always remember both halves of that statement, but both are essential.