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"Scarcity" and "Cost" in the economy of abundance

Saturday, October 28, 2006

In corellation with our previous discussion on the economics of abundance, there is a review on the topic at Harvard Business School's blog. One of the commentator said:
This is easily observed from the prices of any number of e-books on the web. The most popular carry higher prices than the less popular, even though they all cost virtually nothing to reproduce. This emphasizes the point that prices are set by demand, not the constraints of supply. Of course, the price floor created by direct physical materials doesn't exist any more. But production costs never determined price: Demand always did.

The scarcity effect, therefore, has nothing to do with physical constraints. If there is a popular Stephen King novel that exists only in digital form, the price charged for it would be determined by how much the individual reader wants the book. It might cost one-hundredth of a cent to reproduce, but still cost $4.99 to download.

I think it can be true assuming the consumers does not share the book it has purchased through P2P softwares. Prices at the initial sales are determined by consumer demand. But once an information good is released to the market, it's becoming a public good. Any attempts to limit its movement would be artificial (through DRM and IPR), and not natural. So, will there be an adjusted "price"?

Scarcities and Costs

Another commentator said:
The cost of creation is increasing in every creative area such as games, Internet websites, and digital contents. It was possible to make a website with one or two developers five years ago, but it is impossible now if they want to make it attractive to consumers.
Besides creation, one element of cost that I can figure out is time-cost and opportunity cost. The time you spent searching for cheap products at e-bay could be more valuable if it is used in analyzing the ups and downs of the stock market. So, another form of business model could be in making search faster and more filtered. That's what user-review sites such as Digg is doing.

Of course we still need to diffrentiate between purchasing movies at netflix and buying a laptop from e-bay. Movies can be directly downloaded, there is a time cost there. But a laptop needs to be packaged and sent. Thus, there is a distribution costs plus time cost there. This triggers the improvement of two business models: (1) Delivery and (2) Direct Marketing. And where do the tax goes as the transaction is made on the internet? Good question. Then we might need to regulate the internet, but I rather hate the idea of regulating the net.

Walmart could be threatened and so as CBS. So, will market monopoly finally comes to an end? Not really. Where do you search the goods before ending up in netflix or you tube? Google. That's right. What kind of monopoly will the future have? Our next topic is "Competition in the economics of abundance".

Do leave me comments...