Very creative and thought provoking, but wrong. A DVD version of avatar sells for say $20 and Riaa gets some percentage of that. Joe blow downloads avatar for free from google or some other website, ptp or sneakernet. Joe blow sends the riaa some percentage of $20 in photocopied money. That does not provide the same utility for riaa as the avatar.mp4 did for Joe blow. Whether or not Joe blow's download of avatar for…
Good old Adam Smith teaches us that value in exchange is often the opposite of value in use. (His example is that we pay very little for water, which is vital for survival, but lots for a diamond that has very limited value in use, in comparison.) Joe's utility for watching the movie is thus almost irrelevant to the question of how much he should pay for the privilege.
>The question comes down to how much Joe blow WOULD have paid for avatar.mp4 had his only option been to purchase a DVD
Not true, considering our entire economy runs on consumer surplus:
http://www.cliffsnotes.com/study_guide/Consumer-Surplus.topi...
For example, a rabid "Twilight" fan may readily spend a hundred dollars to see the movie, but will actually end up paying just as little as the guy who was dragged in by his fiancee.