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Another Tale of Two Kingdoms

What has gone before:

There are two magical kingdoms, X and Z.  Part of the magic operating in both is the ability to make things out of basic raw materials — let’s call them “blocks” — which appear out of thin air at command, and at no cost.  The supply of blocks is theoretically infinite. (There are limits, but not based on scarcity of materials; rather, each kingdom sets a maximum number of blocks that are able to exist on a given area of land.)

Everyone in both X and Z can be a magic-user, a Maker-of-Things; they merely need to wave their wand to cause a block to appear, and there are other incantations (which are the same in both kingdoms, and available to everyone) to warp, stretch, cut, color and combine blocks into more complicated Things.  Not everyone, however, chooses to use the magical potential of the kingdoms.  The reasons are various: They may not have the patience, or they may not have the talent to turn an imagined visualization into a realized Thing, or they may just not be interested in playing with blocks.  Others have found that they are good at making one kind of Thing, but not another.

Meanwhile… Like people everywhere, the inhabitants of X and Z want nice Things.  It’s human nature.  And so, an economy grows around the desire for Things, in which people are not merely willing but eager to purchase Things from talented Makers, and the Makers are, of course, eager to provide.  At its base, the money that changes hands is a token for an underlying exchange wherein the buyer is saying “Thank you for the quality and convenience; I could never have done this myself,” and the Maker (if she or he is a good businessperson) is saying, “Thank you for selecting my work over others’.”

If that were all, the story would have been done at the end of Part 1.  But, as we have seen, it is possible for people to travel between kingdoms X and Z — in fact, with sufficiently strong magic, it is possible for them to be in both at the same time!  It is also possible for Makers-of-Things with a presence in both kingdoms to go into the import/export trade if they choose to: making their Things in one kingdom, but selling copies in both.

Of course, there are Rules governing import/export.  Intended to protect Makers from counterfeiting, the Rules restrict the magic so that only the certified Makers can export their Things.  This is all well and good when applied to the blocks themselves, the way they were manipulated and connected to each other, and even their color.  However… for every ointment, there is a fly.

Part 1 of this tale concerned two widget-makers.  The widgets they made represent the flies in the import/export ointment.  One kind invokes a special magic to reshape a block; the other changes its surface appearance so that it looks like something other than raw block material.  For arcane reasons known only to a handful of ancient philologists, these two kinds of widgets are known by their names in the Craft — “maps” and “textures” — even though one can neither navigate by the first, nor feel the second.

Kingdom X is the oldest and most populous of its kind — it is where the magic they all use, including Kingdom Z, was first developed.  It is also where the Rules were written, long before other kingdoms ever existed.  Hundreds, perhaps thousands, of so-called textures to be found in X have been in circulation since its founding, and were free for use by anyone to begin with; hence, they are commonly called “freebies”.  Others have (perhaps with their Maker’s permission, perhaps not) entered the freebie stream over time, so that their provenance is at best muddled, and at worst, untraceable.  Nevertheless, since the intent of the import/export Rules is to protect all Makers, the magic is restricted such that Things may be exported, but not their textures — not even when the Maker of the Thing and its textures are the same person.  The same restriction applies to maps — when you export a block sculpted by a map, the magic goes away.

Where there is a will, there is a workaround.  Textures and maps which are not permitted by their Makers to be copied are useless — they cannot be applied to blocks.  However, making them (in the arcana of the Craft) “copy-enabled” also allows them to be copied to the magical device through which people are able to visit, inhabit, and do business in kingdoms like X and Z.  This means that it is possible to buy textures in one kingdom and use them in both, by re-applying their magic to imported Things (and for any other purpose for which they might be used).

Some Makers of textures and maps don’t worry themselves about this.  Their only plea is “Don’t undercut our market by reselling these, or giving them away.”  Others don’t see it that way, and they make up their own rules to add to the kingdom’s, to the extent of, “When you by these from me in X, you may only use them in X.  If you want to use them in Z, buy a second copy in Z.”  Of course these extra rules (which, taking a cue from the Rulers of Kingdom X, they like to call “licenses”) are completely unenforceable… unless they hire a bunch of spies to skulk around both Kingdoms looking for “unauthorized” use.

Mind you, those Makers of textures have every right to make their own rules.  It is a curious anti-magical aspect of Kingdom X (and by adoption, all the others) that no one actually owns anything, even if they made it themselves from start to finish… except something called “copyright”, which is actually the right to regulate copying.  Thus it is perfectly within their purview to insist upon limiting the right to copy their work — that is, to apply it to a block — in one Kingdom but not the other.

But is it “good business”?  Only the market has the answer to that.  As you may know by now, I am a Maker-of-Things in Kingdom Z — but not one in X, nor do I import what I have made from Z to X, yet I can empathize with those who do business in both Kingdoms.  Given the choice, I would naturally buy from a texture or map Maker who is satisfied to be paid once and once only for a copy of their original work — a copy which, I remind you, costs them nothing to reproduce — regardless of where I use it.


A Tale of Two Kingdoms

Once upon a time, in a magical kingdom called X…

Person A invents a widget.  It’s intended to be used by other people who make things, as part of their finishing process.  As widgets go, it’s a good one, and just might be popular.  She decides to put copies of it up for sale, as much to find out how well her widget is considered as to realize any income from the sales. Since displaying a widget is a proven way to sell them, she rents a store and prepares her advertising.  Before she opens her store, Person A has to set a price for her widget.  Being fair-minded, she studies the local widget market and sets a price based on what other people are charging for similar items.  She has faith in the quality of her widget, and that enough makers-of-things will agree, and add it to their tool kit.

In another part of Kingdom X, Person B also invents a widget with the same basic purpose as Person A’s, but with a different style of finish.  Ideally (depending on what they make), the intended end-users may find it useful to have a copy of both A’s and B’s widgets at hand… thus, A and B are not exactly in direct competition, even though they’re both in the widget business.  Person B also rents a store, and gets ready to open it.  Like A, B also has to set a price for his product — but unlike A, B decides to price his based on a rate of compensation for the time it took to make the prototype, and the rent he pays for his store, and the cost of advertising in the local media.   He takes a guess at how many might sell in a given month, divides his monthly-expenses-plus-compensation figure by that quantity, and arrives at a price which — fortunately for him — is not excessively high.  Person B also interprets the phrase “you get what you pay for” to mean that his potential customers will believe in the superiority of his product because the price is a little higher, and be willing to pay it.

It needs to be pointed out that some other factors which might ordinarily influence this pricing exercise are not in operation in Kingdom X.  All each of them had to do was create the prototype widget.  The copies that are sold materialize out of thin air — i.e., there are no production costs.  Delivery is free, too.  Also, A and B pay precisely the same amount of rent and advertising fees.  Their tangible overhead — a.k.a. “the cost of doing business” — is identical.

(Told you it was a magical kingdom…)

Lo and behold… Another magical kingdom, Z, is founded.  Its population is small to begin with, but there are makers-of-things, and more are immigrating every day. Meanwhile, there are almost no widgets to be had there (except some shoddy, outdated free ones).  Persons A and B get wind of this, and simultaneously decide to open a branch store in the new kingdom… and this is where the story gets complicated.

Z is an independent kingdom, not a colony of X, and it naturally has its own currency — call it the Z$.  However, most (if not all) of the immigrants to Z are coming from X, and a means to change X$ to Z$ is set up for their convenience and encouragement, at a rate of X$1 = Z$2.

Z is also a much less expensive kingdom to live and do business in than X is.  In the way these things are calculated, one is permitted to have 3 times as many objects on the same amount of land in Z as in X, for 1/4 the rent (using a well-known third currency as a benchmark to compare the other two).

The result of this situation is: the early merchant immigrants to Z make a public pledge among themselves that they will not charge twice as much for their goods in Z as they do in X — even though the money is only worth half as much — because their overhead is so much lower.  Copies still magically appear at no further cost to them, delivery is still free, and so (for the time being) is advertising.

Person A and B move in.  They’re both still paying equal rent for their stores in Kingdom Z, so their overhead is still identical.  Person A decides that the “conventional wisdom” about pricing is indeed wise, and only changes the currency symbol in her displays.  That is: if her widget cost X$500 in Kingdom X, it costs Z$500 in Kingdom Z, even though Z$500 = X$250.

Person B, on the other hand, is still looking to be compensated for each sale in the same amount of that benchmark currency mentioned above, no matter which kingdom the sale takes place in.  In doing so, he dismisses the 1:4 overhead ratio and sees only the 2:1 currency exchange rate.  Consequently he doubles the numerical value of his prices, charging Z$1000 for a X$500 widget.

All other things being equal — and they are — Person A will see more sales in Kingdom Z because her widget is priced at what the market will bear.  Person B will see few sales, if any, because his widget is plainly overpriced for the market, regardless of its equivalence to that benchmark.  Chances are likely that B’s venture in Kingdom Z will not last long, while A will probably end up emigrating to Z, and begin to consider her original store in Kingdom X as “the branch”, if she doesn’t close it completely.

The moral of this story: Markets are not math alone.  They are psychological.  The citizens of X and Z  — most of all, people who spend time in both kingdoms — do not think of purchases in terms of some benchmark comparison.  They see a number, compare it to what they’re used to paying, and decide if the purchase is worth making.  Furthermore, recall that the Kingdom Z customers for those widgets are makers-of-things, who have also evaluated the market for their own goods and decided that the conventional wisdom regarding prices is “good business”; it’s fair to their customers, too.

(There’s a Part 2 to this story…. stay tuned)