Freeconomics?
Rarely do I come across a business press article that introduces (and applies) as many basic economic concepts as this one by Chris Anderson. Anderson makes the case that the internet (and the digital economy in general) has fundamentally changed the way businesses do business. In a digital economy, according to Anderson, competition necessarily drives prices to zero. Thus, the price of music, software, and movies, for example, will essentially be "free."
The notion of a free good is alien to most introductory chapters in a typical economics text (such as your Krugman text). As Milton Friedman is famous for saying: TANSTAAFL! The basic argument against the concept of "free" is that we possess unlimited wants yet live in a world with scarce resources: to get more of one thing requires us to give up a little (or a lot) of something else.
Read Anderson's article and tell me if you agree or disagree with his main thesis. If you agree with his idea, can you come up with your own example of a product or service that will eventually be priced at zero? Explain why. If you disagree with his idea, can you explain what the "hidden price" is of the various examples he gives in the article?
Hat tip to Newmark's Door for the article.
3 comments:
I agree with Anderson' thesis. Cross-subsidies are among the basic methods of marketing a product. I for one can foresee the costs of bowling allies, roller rinks, and ice skating rinks, going down to rock bottom prices due to the declining nation wide trend of using these types of facilities. These facilities in turn would jack up concession stand prices and the prices for special amenities such as those inflatable lanes for the younger children at bowling allies and things along those lines. But I have to wonder as to how much longer tactics like these will hold out in the years to come, especially in light of America's continuous weakening of the dollar and the rise in gas prices. I feel that people will seek products and services that will reflect their more stationary lifestyles.
I have a hard time believing that movies are going to be free in the near future. Maybe, free movie downloads, like with music, but definately not movies at the theater. I think the last time i went to the movies they were still $5.50, but now they are outrageously priced right along with the concessions. I also have a hard time buying that any of these things are going to be free, there is always a catch even if the payment is the time I have to waste signing up for more "free" crap, just so I get my "free" whatever it may be. Maybe there won't be a monetary cost for these things, but you can almost bet there will a cost, somewhere, somehow. It's just how it is, people are greedy. If there is a way to make money from something, anything, they are going to do it.
In the near future I can see how the whole idea of free over the internet would work, because most of it is based on the idea that people respond to incentives. Usually if someone is shopping and something is say 15 dollars at regular price but it is buy one get one free then basically each shirt will cost 7.50 instead of the normal 15. The idea of free today as talked about in the thesis is based on getting something in return like stop and a certain gas station and get free air for your tires. At this point for me the thesis just seems like a stretch but some of it makes sense that it could happen in the future if technology stays on the same path. For the most part though I would have to agree with the statement that there is no such thing as a free lunch.
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