Archive of UserLand's first discussion group, started October 5, 1998.

Scarcity (was: Re: Because...)

Author:David Carter-Tod
Posted:8/25/2000; 9:52:23 AM
Topic:Next survey: Are you an open source developer?
Msg #:20201 (In response to 20154)
Prev/Next:20200 / 20202

Scarcity is interesting.

Traditionally price is dictated by supply and demand. Simplistically, as price goes up, demand goes down and as price goes down, demand goes up. Supply operates in the converse -- as price goes up, supply goes up. The market finds equilibrium where the two meet.

Supply is determined, in turn, by fixed costs and variable costs. With digital products fixed costs remain, but variable costs, i.e. the incremental costs as you produce more X (i.e. copies), are close to, if not, zero. This still means that a supplier must cover their fixed costs, which includes the programmers/musicians/production teams that create the product.

Demand is determined (dim, distant, hazy memories of an undergraduate education) by the IS/LM curves.

While demand is not infinite for certain products, since the financial cost to the consumer is zero with things like Napster, that would take the market out of equilibrium -- the supplier cannot cover their fixed costs.

I can't, for the life of me, find a sophisticated treatment of these issues, but I'm sure it must exist in economics journals somewhere. Someone care to point me in the right direction?

http://www-personal.umich.edu/~jmm/presentations/pisa-jmm-position.html ?

I guess The Magic Cauldron is ESR's take on the issue, but have economists responded to this?

http://www.tdc.ca/digital.htm ?

http://www.seas.upenn.edu/~gaj1/feastgg.html seems to think about these things, but if the answer is that the new scarcity is time, it may resolve demaand and supply issues in that creative people can only supply what they have the time and attention to supply, that doesn't resolved how they or I put food on our table.

David

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