8 ms·

Zero marginal cost doesn't imply that the product or service in question has no value. Rather, it implies that producing has no value to the firm. But it can st

by tpeo 9y ago

Zero marginal cost doesn't imply that the product or service in question has no value. Rather, it implies that producing has no value to the firm. But it can still have value to potential consumers. As an example, take any market with natural monopolies. It costs nearly nothing to a company working with electric power distribution to serve an additional client in comparison to their fixed costs. But the client still wants their electricity.

pishpash 9y ago
It costs money to maintain the distribution network to every additional client. But then they are regulated to (theoretically) cost just enough to ensure such goals. If the network is self-maintaining and already serves every client, then that business would be over, too.
- sklivvz1971 9y ago
  It costs much more money to produce the electricity they use!
infogulch 9y ago
Publishers don't have a natural monopoly, just a circumstantial monopoly. (Yes I just made that up.) That produces a completely different implication: Zero marginal cost means that a competitor can come along at any time and charge a zero price. This is the power of advancing information technology: it empowers people with little to no capital & operational budget to have a proportionately huge effect on any information system that has zero marginal cost.
- c3534l 9y ago
  No it doesn't because there are still fixed costs. Even if it costs me the same to send out a software license to the 100th person as it does to the 101st person, I still have to pay to develop the software, pay the rent, the fixed subscription fee of whatever it is I'm using behind the scenes to develop it, host it, etc.
  - rsfern 9y ago
    Sure, but do the fixed costs really justify the current pricing? The last paper I submitted, the gold open access fee was $3k... Forget it, we just put the preprint on arXiv, which has no problem hosting versioned preprints at no cost to the authors.
    - c3534l 9y ago
      I was really only commenting on the statement "Zero marginal cost means that a competitor can come along at any time and charge a zero price." There ain't no such thing as a free lunch.
- dredmorbius 9y ago
  Can you think of a natural monopoly which isn't circumstantial? Is your model falsifiable?
  - infogulch 9y ago
    Natural monopolies have some natural cause, not created by the monopoly or their customers. The classic example is utilities, where one natural cause of monopoly is the high cost of infrastructure discouraging new players (capex), and another is because nobody wants 5 separate power lines running to each house just so we have some competition (regulation). When I made up "circumstantial monopolies" I was thinking of monopolies that only still exist via circumstances. Like there used to be some regulation or it used to be a natural monopoly causing it to be a true monopoly, but those external reasons have disappeared and they only remain a monopoly because of inertia. Maybe "inertial monopolies" would have been a better term. It's certainly more amusing. So my argument is that journals may have had a natural monopoly in the past, and have had an inertial monopoly since, but there's no inherent reason why they still have a monopoly today. Does that help explain?
    - dredmorbius 9y ago
      That's helpful, yes, thank you. I'm not sure it's convincing, but then I'm not settled on what is so generally. This is a question I've been thinking through heavily. One model I'm working on is that monopolies are synonymous with economic rents, and derive from network structures, and/or control systems. These might be physical or logical, and would include political control systems, one of the typically sugested forms of "artificial monopolies". I'm not sure that particular distinction is meaningful. It also doesn't seem to be the one you're making. In the case of extant structures vs. novel ones, which does seem to match your case, there's the question of why an apparrently better or more robust novel system doesn't displace an incumbent. Much of that is seen as a critical mass problem, though viewing it as a critical cohort problem might be more useful: Facebook overtook MySpace by starting and building from a high-appeal, high-value core (Harvard undergraduates). This overcame network effects by seeking individual nodes with a far greater value function both in social and advertiser appeal. That pattern of overtaking seems repeated among other networks as well. Private jet charters vs. commercial 1st class, even Concorde-speed service, might be another. For academic publishing, defection of fields, researchers, journals, or specific universities might be a similar mechanism. Is this in any way along the lines of what you are thinking?
sklivvz1971 9y ago
"It costs nearly nothing to a company working with electric power distribution to serve an additional client in comparison to their fixed costs." I beg to differ. The infrastructure is only part of the cost (the fixed part). The fuel needed to produce the electricity (or the electricity itself) is the variable part. As a consumer I pay much more for the variable part then for the fixed part, therefore what you say can't be correct.
- tpeo 9y ago
  Why do you say that you pay more for the variable part?
  - isostatic 9y ago
    On the UK out bills are two parts. The standing charge, which is the infrastructure rental, and costs the same wherever you draw 100A or 100mA, and the per unit charge. The later makes up the bill of your bill.
    - tpeo 9y ago
      If I'm not mistaken, the UK uses price-cap regulation in electricity distribution, which is one where government just sets a maximum per unit price for electricity. The standing charge only pays the cost of maintaining his own individual connection to the network, but the fixed cost of installing and maintaining the distribution network go into everything else in the bill. So an UK's consumer "variable" electricity costs are actually the firm's fixed costs.
      - isostatic 9y ago
        At various points both of the large parties have proposed capping energy bills. Not happened yet (the Tories ridiculed labour for proposing it, then a year later proposed it themselves) We do have a very mobile energy market, switching provider is easy. There may be price caps on the monopoly parting the system - the connection to the grid - that's because it's a natural monopoly, moreso even that the last mile of fibre from the cabinet to your house.

by tpeo 9y ago

pishpash 9y ago

It costs money to maintain the distribution network to every additional client. But then they are regulated to (theoretically) cost just enough to ensure such goals. If the network is self-maintaining and already serves every client, then that business would be over, too.

sklivvz1971 9y ago
It costs much more money to produce the electricity they use!

infogulch 9y ago

Publishers don't have a natural monopoly, just a circumstantial monopoly. (Yes I just made that up.) That produces a completely different implication: Zero marginal cost means that a competitor can come along at any time and charge a zero price. This is the power of advancing information technology: it empowers people with little to no capital & operational budget to have a proportionately huge effect on any information system that has zero marginal cost.

c3534l 9y ago
No it doesn't because there are still fixed costs. Even if it costs me the same to send out a software license to the 100th person as it does to the 101st person, I still have to pay to develop the software, pay the rent, the fixed subscription fee of whatever it is I'm using behind the scenes to develop it, host it, etc.
- rsfern 9y ago
  Sure, but do the fixed costs really justify the current pricing? The last paper I submitted, the gold open access fee was $3k... Forget it, we just put the preprint on arXiv, which has no problem hosting versioned preprints at no cost to the authors.
  - c3534l 9y ago
    I was really only commenting on the statement "Zero marginal cost means that a competitor can come along at any time and charge a zero price." There ain't no such thing as a free lunch.
dredmorbius 9y ago
Can you think of a natural monopoly which isn't circumstantial? Is your model falsifiable?
- infogulch 9y ago
  Natural monopolies have some natural cause, not created by the monopoly or their customers. The classic example is utilities, where one natural cause of monopoly is the high cost of infrastructure discouraging new players (capex), and another is because nobody wants 5 separate power lines running to each house just so we have some competition (regulation). When I made up "circumstantial monopolies" I was thinking of monopolies that only still exist via circumstances. Like there used to be some regulation or it used to be a natural monopoly causing it to be a true monopoly, but those external reasons have disappeared and they only remain a monopoly because of inertia. Maybe "inertial monopolies" would have been a better term. It's certainly more amusing. So my argument is that journals may have had a natural monopoly in the past, and have had an inertial monopoly since, but there's no inherent reason why they still have a monopoly today. Does that help explain?
  - dredmorbius 9y ago
    That's helpful, yes, thank you. I'm not sure it's convincing, but then I'm not settled on what is so generally. This is a question I've been thinking through heavily. One model I'm working on is that monopolies are synonymous with economic rents, and derive from network structures, and/or control systems. These might be physical or logical, and would include political control systems, one of the typically sugested forms of "artificial monopolies". I'm not sure that particular distinction is meaningful. It also doesn't seem to be the one you're making. In the case of extant structures vs. novel ones, which does seem to match your case, there's the question of why an apparrently better or more robust novel system doesn't displace an incumbent. Much of that is seen as a critical mass problem, though viewing it as a critical cohort problem might be more useful: Facebook overtook MySpace by starting and building from a high-appeal, high-value core (Harvard undergraduates). This overcame network effects by seeking individual nodes with a far greater value function both in social and advertiser appeal. That pattern of overtaking seems repeated among other networks as well. Private jet charters vs. commercial 1st class, even Concorde-speed service, might be another. For academic publishing, defection of fields, researchers, journals, or specific universities might be a similar mechanism. Is this in any way along the lines of what you are thinking?

sklivvz1971 9y ago

"It costs nearly nothing to a company working with electric power distribution to serve an additional client in comparison to their fixed costs." I beg to differ. The infrastructure is only part of the cost (the fixed part). The fuel needed to produce the electricity (or the electricity itself) is the variable part. As a consumer I pay much more for the variable part then for the fixed part, therefore what you say can't be correct.

tpeo 9y ago
Why do you say that you pay more for the variable part?
- isostatic 9y ago
  On the UK out bills are two parts. The standing charge, which is the infrastructure rental, and costs the same wherever you draw 100A or 100mA, and the per unit charge. The later makes up the bill of your bill.
  - tpeo 9y ago
    If I'm not mistaken, the UK uses price-cap regulation in electricity distribution, which is one where government just sets a maximum per unit price for electricity. The standing charge only pays the cost of maintaining his own individual connection to the network, but the fixed cost of installing and maintaining the distribution network go into everything else in the bill. So an UK's consumer "variable" electricity costs are actually the firm's fixed costs.
    - isostatic 9y ago
      At various points both of the large parties have proposed capping energy bills. Not happened yet (the Tories ridiculed labour for proposing it, then a year later proposed it themselves) We do have a very mobile energy market, switching provider is easy. There may be price caps on the monopoly parting the system - the connection to the grid - that's because it's a natural monopoly, moreso even that the last mile of fibre from the cabinet to your house.