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"with information goods the social marginal cost of distribution is close to zero ... If information goods are to be distributed at their marginal cost of produ

"with information goods the social marginal cost of distribution is close to zero ... If information goods are to be distributed at their marginal cost of production – zero – they cannot be created and produced by entrepreneurial firms that use revenues obtained from sales to consumers to cover their [fixed set-up] costs … [companies] must be able to anticipate selling their products at a profit to someone." 1/N > 0 for N = (1,∞) There is a very significant difference between a cost of distribution close to zero vs actually zero. So long as revenue costs are above zero, entrepreneurial firms can find a way to profit enough for food, clothing, and shelter. There is a basic cost to survival (food/clothing/shelter/healthcare is not, and never will be, free), requiring everyone contribute something which another will consider valuable enough to exchange their work for. Confiscation of "excess" fails as it disincentives increased productivity. So long as people have a motive to either elicit value from their environment, or persuade others to trade that value in a mutually beneficial manner, capitalism will ensure enough productivity to provide for all ... and as marginal costs decrease towards (but not reach!) zero, incentive is there to accelerate productivity to match.

to3m 13y ago
I don't understand why companies won't simply ignore his suggestion that they can't do what he says they can't, and use revenues obtained from sales to cover their fixed costs. The fact that their marginal cost is zero has precisely no relevance; they've spent money making whatever it is they've made, and they need it made back. And the burden of paying for all of this will fall on the customer, just as it does today. As an example, consider some top-selling video game on the iOS app store. The $100/year fee for the development licence isn't nothing, but compared to the cost of the staff and their equipment, it really might as well be. And yet it's perfectly possible for these things to make money, and in the cases they don't, the zero marginal cost thing has absolutely nothing to do with it. In fact the zero marginal cost is a major draw, for exactly the reasons I give in my first paragraph. This seems like some an obvious rebuttal that I can only imagine I've missed something... (Another article from this chap reached the front page a couple of weeks ago - see https://news.ycombinator.com/item?id=7406894 https://news.ycombinator.com/item?id=7406894 - basically the same thing.)
Double_Cast 13y ago
I've been wracking my brain trying to understand the article. Yes, "just take the limit" was my initial reaction too. But I think (maybe) the author is further arguing that the race to the bottom will squeeze the bottom line, which will suffocate competition until only the strongest remains. At this point, the market is a monopoly (which we all know is the root of all evil). Incidentally, diminoten points out that replication is free, rather than production. The industries undergoing the cost squeeze which the article specifically mentions (knowledge, news and entertainment) are in the replication business. Therefore, leveraging marginal costs is literally their business model. But I expect the cost of creation will remain more or less constant. In other businesses like manufacturing, this is equivalent to economies of scale, except manufacturing produces the first copy and replicates subsequent copies. So while music corporations might eventually go totally bankrupt, musicians will continue producing music while uploading for free, and I expect manufacturing will continue manufacturing widgets (even if it comes down to a monopoly).

to3m 13y ago

I don't understand why companies won't simply ignore his suggestion that they can't do what he says they can't, and use revenues obtained from sales to cover their fixed costs. The fact that their marginal cost is zero has precisely no relevance; they've spent money making whatever it is they've made, and they need it made back. And the burden of paying for all of this will fall on the customer, just as it does today. As an example, consider some top-selling video game on the iOS app store. The $100/year fee for the development licence isn't nothing, but compared to the cost of the staff and their equipment, it really might as well be. And yet it's perfectly possible for these things to make money, and in the cases they don't, the zero marginal cost thing has absolutely nothing to do with it. In fact the zero marginal cost is a major draw, for exactly the reasons I give in my first paragraph. This seems like some an obvious rebuttal that I can only imagine I've missed something... (Another article from this chap reached the front page a couple of weeks ago - see https://news.ycombinator.com/item?id=7406894 https://news.ycombinator.com/item?id=7406894 - basically the same thing.)

Double_Cast 13y ago

I've been wracking my brain trying to understand the article. Yes, "just take the limit" was my initial reaction too. But I think (maybe) the author is further arguing that the race to the bottom will squeeze the bottom line, which will suffocate competition until only the strongest remains. At this point, the market is a monopoly (which we all know is the root of all evil). Incidentally, diminoten points out that replication is free, rather than production. The industries undergoing the cost squeeze which the article specifically mentions (knowledge, news and entertainment) are in the replication business. Therefore, leveraging marginal costs is literally their business model. But I expect the cost of creation will remain more or less constant. In other businesses like manufacturing, this is equivalent to economies of scale, except manufacturing produces the first copy and replicates subsequent copies. So while music corporations might eventually go totally bankrupt, musicians will continue producing music while uploading for free, and I expect manufacturing will continue manufacturing widgets (even if it comes down to a monopoly).