3 ms·

I would argue it basically is because the high fixed costs are from paying the developers to write and maintain good competitive software and the marginal cost

• AnthonyMouse 5y ago
  The traditional definition wasn't really contemplating software, because the important thing that makes it a natural monopoly is that building a second one would cause the user to have to pay a lot more. If you have one power grid, it costs a billion dollars to operate, so the average user has to pay $1B/N where N is the number of users on the grid. If you have two power grids, now the average user has to pay $2B/N, which is twice as much, and most importantly, is a large difference. With software, there are so many users that the difference between $X/N and $2X/N is still ~zero. You can have two providers, or ten, and you're in no danger of them being unable to recover their development costs even at low prices. The cost of paying a number that rounds to zero twice is well worth the benefits of competition. In other words, the barriers to entry are low (absent some artificial constraint). It isn't that the fixed costs are high, they're only "high" relative to the essentially non-existent unit cost. That's totally different. It means that if you want to enter the market for email clients or messaging apps or phone games, that can be done by an individual or a small business. A small business can't build their own power grid.