Sunk versus marginal costs - see the graph below. In this graph the red line represents consumers - the lower the price of the good becomes, the more people who are willing to buy it, thus the downward sloping line. Producers (IE record labels) are the green line. Producing the movie/game/music costs a set amount of money ("sunk" costs), but beyond that the marginal cost of production is essentially zero (additional CD's are just a few cents apiece). As a result the green line is flat - it costs the game company, say 5 million dollars to produce the game whether they sell 1 or 1,000,000,000 copies. From there it is just a matter of finding the price point and quantity sold. The producers set the prices, so they pick whatever price makes them the most money. To see this, imagine another green line below the first one. That is the total cost of production for the product. From there the manufacturers try to get the most profit possible; or; graphically speaking; whatever price point gives them the largest green-striped square. The intersection between that price and the demanded quantity is at the blue star below. In the past, those who were unwilling to pay studio prices were SOL, but with piracy, anyone who demands the good can get it. IMG Hope that helps! If you have any more economics questions feel free to PM me. Haha i just took a test with everything you just said in it. OT: When i first read about this i wasnt surprised. 4chan has been doing this for like ever. It seems like the main stream media is just hearing about it so they're making a big deal out of it.