4 ms·

We really don't have a good model for digital goods. In theory, the cost of goods should be roughly equal to the marginal cost of creating them. With physical g

We really don't have a good model for digital goods. In theory, the cost of goods should be roughly equal to the marginal cost of creating them. With physical goods, this mostly works out: amortizing the fixed costs and profit margin result in just a relativly small markup on the marginal cost. With digital goods, and their near 0 marginal cost, this system fundamentally breaks down, and we are still just hacking together whatever solution we can get to kind of work.

aikinai 8y ago
This is not unique to digital goods. Products that rely on intellectual property have worked the same way for centuries. The cost of movies, drugs, books, etc. have nothing to do with their marginal cost.
- Godel_unicode 8y ago
  It's not even just an intellectual property problem either, but one of any market with artificially constrained supply. See for instance OPEC-created oil prices and De Beers-created diamond prices. In a way, you could argue that iTunes was the fracking of music sales, and that other markets need something similar.
- EGreg 8y ago
  The cost of goods should be the amortized startup cost plus the marginal cost. Startup costs can include the R&D and so on. “Intellectual property” is just one framework by which the startup costs can be recouped, but at the price of a major impedance mismatch. Instead, the startup costs can be paid for in a collaborative framework (open source, wikipedia, and so on) and the growing snowball of results freely used and remixed in common by all, producing more results. Then the marginal costs would be simply hosting and support. The questions of “but then who would make XYZ” have already been answered. The question, though, is will we still have famous authors and heroes, or will our digital products be made 95% by the crowd. I think the latter. Wikipedia and open source have very few famous personalities - just the BDFLs that launched and run the project, and not specific creators of content.
  - ojilles 8y ago
    Not saying that’s false, but YouTube has a bunch of very famous authors.
- anongraddebt 8y ago
  I don't think gizmo686 had fully fleshed out their argument. Digital goods do seem to be doing some wonky things that our previous models don't handle well. There is a combination of near zero marginal costs, near instantaneous global distribution, and near zero transaction costs. Before the internet, books and movies did not have those three properties.
- thomastjeffery 8y ago
  For centuries, IP-based goods have had a significant marginal cost. With the printing press, this cost went down, but it still took a significant effort to create a copy; giving that copy some independent value. Digital media has practically zero marginal cost. So long as you are connected to someone with data, it is trivial, and practically free to copy that data. There are efforts (DRM) to fill the void of marginal cost; but they are hacked together, and fundamentally flawed.
jasonlfunk 8y ago
Price shouldn't be based on the cost of production, but rather the value derived by the buyer. As a consumer, I don't care at all what the manufacturer paid to make the thing. I only care what I get out of it and whether the money I gave is worth the value get out of it.
- pishpash 8y ago
  But in a competitive market, the price should converge toward the cost of production, or there would be arbitrage. At present, the price of digital goods is set by IP monopolies which are almost certainly mispricing them. But the alternative, due to the free cost to copy (vs. cost of production), would be zero. The proper way forward should involve an IP protection regime where the period of protection is somewhat correlated with the time to produce rather than something arbitrary and fixed.
- antpls 8y ago
  I'm not an expert, but : didn't that way of thinking lead us to all the modern ecological and ethical catastrophes ? "Don't think about the cost, think about yourself". As a consumer, I think about systems, and my actions have different outcomes on different horizons. If you don't tell me the complete truth (for example, by buying now at your specific price, I'm sacrificing options for the future), it is not fair. It would be nice to have a standard forcing producers to add information about their products, to educate consumers. Like bio-labels and nutrients information on a food products. I don't know how it would work for software. Maybe it would show to everyone that softwares should basically be free and open for the mass
- claudiawerner 8y ago
  >Price shouldn't be based on the cost of production, but rather the value derived by the buyer. As to what price "should" or "shouldn't" be based on, I'm confused with the meaning here. Are you saying that we ought to change society such that this is true, or that when accounting we shouldn't consider the cost of production? >As a consumer, I don't care at all what the manufacturer paid to make the thing. This is exactly true, and actually this was recognised even by the classical economists and Marx: value (in labour hours) works behind the backs of both producers and consumers[0], because it is precisely socially determined by the market. Consider that if you spent hours making shoes nobody wanted, there are two explanations as to why you stopped eventually: (1) nobody "derived value" from them, (2) the labour embodied was not socially useful. These two claims are not actually in contradiction with one another. A society in which price of a freely reproducible commodity (or some quantity transformable to price under the right conditions) is dependent on the cost of production is precisely one dependent on the value derived by all the buyers. You don't need to care about how long it took, because that's taken for you through the abstraction of labour. Nobody knows how long it took since to work out such a thing would be as futile as adding up the prices of the labour and tools required to make the good, the labour required to make those, the labour required to make those, to extract the raw materials to make those, to produce the electricity to power the machines etc. - all of this is taken care of and reflected in the final price. Your argument is similar to the one put to Ricardo: pearls don't fetch high prices beacuse men dive for them, but rather, men dive for them because they fetch a high price. The fact that they fetch a high price is explained away along the lines of "people just find them desirable, it's just a matter of subjective preference/utility". Cockshott[1] asks us to think about it more: would the pearls fetch such a high price if they just washed up on the shore? And indeed, rich people wouldn't even want them any more - they want to be seen wearing something expensive that required a lot of time and effort to procure. So Ricardo really says that the precondition for a commodity having "value" is that it is an object of demand. Marx roughly agreed, to which his theory of socially necessary labour time appears. [0] "The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom." - see also the theory of commodity fetishism which obscures the real concrete labour content in favour of its abstract representation in the Price-form. [1] "Neither does it matter what people are willing to pay for X. The market will be in equilibrium when demand equals supply at a price in line with labour content. If you’re not willing to pay that much, you don’t get any. If you’d be willing to pay a lot more you are in luck, you don’t have to. In the limiting case where nobody is willing to pay a price for X that corresponds to its labour content, X doesn’t get produced."
tonyedgecombe 8y ago
If we look at the software world the cost does seem to be trending towards zero.

aikinai 8y ago

This is not unique to digital goods. Products that rely on intellectual property have worked the same way for centuries. The cost of movies, drugs, books, etc. have nothing to do with their marginal cost.

Godel_unicode 8y ago
It's not even just an intellectual property problem either, but one of any market with artificially constrained supply. See for instance OPEC-created oil prices and De Beers-created diamond prices. In a way, you could argue that iTunes was the fracking of music sales, and that other markets need something similar.
EGreg 8y ago
The cost of goods should be the amortized startup cost plus the marginal cost. Startup costs can include the R&D and so on. “Intellectual property” is just one framework by which the startup costs can be recouped, but at the price of a major impedance mismatch. Instead, the startup costs can be paid for in a collaborative framework (open source, wikipedia, and so on) and the growing snowball of results freely used and remixed in common by all, producing more results. Then the marginal costs would be simply hosting and support. The questions of “but then who would make XYZ” have already been answered. The question, though, is will we still have famous authors and heroes, or will our digital products be made 95% by the crowd. I think the latter. Wikipedia and open source have very few famous personalities - just the BDFLs that launched and run the project, and not specific creators of content.
- ojilles 8y ago
  Not saying that’s false, but YouTube has a bunch of very famous authors.
anongraddebt 8y ago
I don't think gizmo686 had fully fleshed out their argument. Digital goods do seem to be doing some wonky things that our previous models don't handle well. There is a combination of near zero marginal costs, near instantaneous global distribution, and near zero transaction costs. Before the internet, books and movies did not have those three properties.
thomastjeffery 8y ago
For centuries, IP-based goods have had a significant marginal cost. With the printing press, this cost went down, but it still took a significant effort to create a copy; giving that copy some independent value. Digital media has practically zero marginal cost. So long as you are connected to someone with data, it is trivial, and practically free to copy that data. There are efforts (DRM) to fill the void of marginal cost; but they are hacked together, and fundamentally flawed.

jasonlfunk 8y ago

Price shouldn't be based on the cost of production, but rather the value derived by the buyer. As a consumer, I don't care at all what the manufacturer paid to make the thing. I only care what I get out of it and whether the money I gave is worth the value get out of it.

pishpash 8y ago
But in a competitive market, the price should converge toward the cost of production, or there would be arbitrage. At present, the price of digital goods is set by IP monopolies which are almost certainly mispricing them. But the alternative, due to the free cost to copy (vs. cost of production), would be zero. The proper way forward should involve an IP protection regime where the period of protection is somewhat correlated with the time to produce rather than something arbitrary and fixed.
antpls 8y ago
I'm not an expert, but : didn't that way of thinking lead us to all the modern ecological and ethical catastrophes ? "Don't think about the cost, think about yourself". As a consumer, I think about systems, and my actions have different outcomes on different horizons. If you don't tell me the complete truth (for example, by buying now at your specific price, I'm sacrificing options for the future), it is not fair. It would be nice to have a standard forcing producers to add information about their products, to educate consumers. Like bio-labels and nutrients information on a food products. I don't know how it would work for software. Maybe it would show to everyone that softwares should basically be free and open for the mass
claudiawerner 8y ago
>Price shouldn't be based on the cost of production, but rather the value derived by the buyer. As to what price "should" or "shouldn't" be based on, I'm confused with the meaning here. Are you saying that we ought to change society such that this is true, or that when accounting we shouldn't consider the cost of production? >As a consumer, I don't care at all what the manufacturer paid to make the thing. This is exactly true, and actually this was recognised even by the classical economists and Marx: value (in labour hours) works behind the backs of both producers and consumers[0], because it is precisely socially determined by the market. Consider that if you spent hours making shoes nobody wanted, there are two explanations as to why you stopped eventually: (1) nobody "derived value" from them, (2) the labour embodied was not socially useful. These two claims are not actually in contradiction with one another. A society in which price of a freely reproducible commodity (or some quantity transformable to price under the right conditions) is dependent on the cost of production is precisely one dependent on the value derived by all the buyers. You don't need to care about how long it took, because that's taken for you through the abstraction of labour. Nobody knows how long it took since to work out such a thing would be as futile as adding up the prices of the labour and tools required to make the good, the labour required to make those, the labour required to make those, to extract the raw materials to make those, to produce the electricity to power the machines etc. - all of this is taken care of and reflected in the final price. Your argument is similar to the one put to Ricardo: pearls don't fetch high prices beacuse men dive for them, but rather, men dive for them because they fetch a high price. The fact that they fetch a high price is explained away along the lines of "people just find them desirable, it's just a matter of subjective preference/utility". Cockshott[1] asks us to think about it more: would the pearls fetch such a high price if they just washed up on the shore? And indeed, rich people wouldn't even want them any more - they want to be seen wearing something expensive that required a lot of time and effort to procure. So Ricardo really says that the precondition for a commodity having "value" is that it is an object of demand. Marx roughly agreed, to which his theory of socially necessary labour time appears. [0] "The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom." - see also the theory of commodity fetishism which obscures the real concrete labour content in favour of its abstract representation in the Price-form. [1] "Neither does it matter what people are willing to pay for X. The market will be in equilibrium when demand equals supply at a price in line with labour content. If you’re not willing to pay that much, you don’t get any. If you’d be willing to pay a lot more you are in luck, you don’t have to. In the limiting case where nobody is willing to pay a price for X that corresponds to its labour content, X doesn’t get produced."

tonyedgecombe 8y ago

If we look at the software world the cost does seem to be trending towards zero.