Infinity Is Your Friend In Economics
from the use-it-wisely dept
Continuing our ongoing series looking at economics when scarcity is removed from markets, I wanted to go back to the early discussion on the importance of understanding zero in making sense of markets where scarcity is removed. That post discussed how many who believe economics requires scarcity do so because they believe economic equations break down when a zero is put into them. That is, they see a zero in the “marginal cost = price” statement and they say that the system must be broken, because you can’t have a market when the price is zero. However, that’s wrong. Zero works just fine, but you have to understand why.
The key actually isn’t in zero, but zero’s flip side: infinity. Just like many early societies had tremendous difficulty in coming to understand the concept of zero, the concept of infinity was incredibly difficult to grasp. Just as with zero, certain aspects of mathematics and physics stalled out without an understanding of infinity — and it would be a shame if the same happens for economics. However, just as with zero, many who look at the economics get scared off by infinity and assume it must break otherwise proven concepts. Throw an infinity into the supply of a good and the supply/demand curve is going to toss out a price of zero (sounds familiar, right?). Again, the first assumption is to assume the system is broken and to look for ways to artificially limit supply.
However, the mistake here is to look at the market in a manner that is way too simplified. Markets aren’t just dynamic things that constantly change, but they also impact other markets. Any good that is a component of another good may be a finished good for the seller, but for the buyer it’s a resource that has a cost. The more costly that resource is, the more expensive it is to make that other good. The impact flows throughout the economy. If the inputs get cheaper, that makes the finished goods cheaper, which open up more opportunities for greater economic development. That means that even if you have an infinite good in one market, not all the markets it touches on are also infinite. However, the infinite good suddenly becomes a really useful and cheap resource in all those other markets.
So the trick to embracing infinite goods isn’t in limiting the infinite nature of them, but in rethinking how you view them. Instead of looking at them as goods to sell, look at them as inputs into something else. In other words, rather than thinking of them as a product the market is pressuring you to price at $0, recognize they’re an infinite resource that is available for you to use freely in other products and markets. When looked at that way, the infinite nature of the goods is no longer a problem, but a tremendous resource to be exploited. It almost becomes difficult to believe that people would actively try to limit an infinitely exploitable resource, but they do so because they don’t understand infinity and don’t look at the good as a resource.
If you’re looking to catch up on the posts in the series, I’ve listed them out below:
Economics Of Abundance Getting Some Well Deserved Attention
The Importance Of Zero In Destroying The Scarcity Myth Of Economics
The Economics Of Abundance Is Not A Moral Issue
A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
Why The Lack Of Scarcity In Economics Is Getting More Important Now
History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers
Filed Under: techdirt feature
Comments on “Infinity Is Your Friend In Economics”
Being Adamant = Zero Influence
Plenty of scarcities continue to exist today, wherever I live.
Attention Economy
Seth Godin touched on this in his book.
“Permission Marketing”
Here is an excerpt
When there’s an abundance of any commodity, the value
of that commodity plummets. If a commodity can be
produced at will and costs little or nothing to create, it’s
not likely to be scarce, either. That’s the situation with
information and services today. They’re abundant and
cheap. Information on the web, for example, is plentiful
and free.
…
There is one critical resource, though, that is in
chronically short supply. Bill Gates has just as much as
you do. And even Warren Buffet can’t buy more. That
scarce resource is TIME. And in light of today’s
information glut, that means that there’s a vast shortage of ATTENTION.
Re: Attention Economy
If a commodity can be produced at will and costs little or nothing to create, it’s not likely to be scarce, either.That’s the situation with information and services today. They’re abundant and cheap. Information on the web, for example, is plentiful and free.
information on the web – abundant and free. Very true. I’m not sure if there’s demand for all those information anyway. Perhaps good, reliable information will generate demand while others are stashed.
Re: Attention Economy
Sure,ATTENTION is the most precious resource as from attention we get creativity and most importantly LOVE
but
abundance of any commodity leads to more free time which in turn improve it quality and attention depends more on the quality of time than it quantity
eventually the new economic would drastically change our perception of time to the point where the scarcity of time itself would cease to be a problem
we can buy time
that’s why we live much longer and much better than our ancestors
but as long as we don’t learn to share this most valuable resource equally and freely we are going are all going to suffer the agonizing scarcity of real attention.
people loose time because they fight over it
people loose time because they try to save it while manipulating other people into believing false attention
our economic of scarcity is largely based on time manipulation
when people would learn share time honestly which also meaning paying real attention to one another than we will have a life based on an abundance of time
this is not an easy concept to grasp but it seems that we this way or the other we are evolving toward that goal and the economic of abundance is just a necessary step toward the existence of real attention.
and when u get real attention there is no limits to what u can achieve/
What is infinity
A pink cow in a purple pasture drinking chocolate milk
Most of you won’t understand this…..
Re: What is infinity
Sense, dear sense: Scarcity does not implies a min. condition sine qua non. Scarcity is just a paramethrical order that adjust ordinal sense. Many reasonings ends in minimizing an outcome but its just a mathematical implication.
Re: What is infinity
I get it =]
There are laws enforced by this thing called the WTO that protect “free trade”. Now would be a good time to point out that they protect only the free trade interests of the producers, not the consumers. Countries have had to deal with the WTO disintegrating sensible laws for the sake of keeping markets open.
We’re dealing with the opposite now. The scenario we’re currently faced with is that the markets are there and willing, but the producers are restricting access to those markets. This, one might say, is their right: after all, it’s their product, they can decide where they do and do not wish to sell it.
(Here would be a perfect opportunity to get into how the WTO benefits producers and has little to no consideration for consumers, but I won’t go there.)
To put a limit on an infinite supply is indeed to restrict free trade.
A decision needs to be made: give me free music or give me tariffs on cloned meat. You cannot have it both ways.
That said, I don’t see why people don’t like FREE, UNLIMITED ADVERTISING. As Mike points out, that’s essentially what we’re talking about here.
Re: Xiera
First of all you lost me on “A decision needs to be made: give me free music or give me tariffs on cloned meat. You cannot have it both ways.” I have no idea what you mean by that.
Secondly, I agree that when government puts a limit on supply, whether it’s infinite or not, restricts free trade.
However, I do not agree that when a producer of a good or service limits their supply by their choosing that it limits free trade, because that’s one of the benefits of “free trade”, that one party can charge whatever they want for their good/service, they can limit the sale of it, and they can even stop selling it if they want. There may still be people that want it, and are angry they can’t get (at least at that point in time), but no one has a right to force someone to sell something, or produce something.
Re: Re: Xiera
Indeed, however if someone is refusing to make or sell products such as a pharmaceuticals for people in third world that cannot pay for it, it seems only ethical that the product should be made available to generic manufacturers to provide it without the cost of the IP. (Thorny issue I know, but enormously important)
this article sucks
put up something cool
Re: this article sucks
Your comment sucks. Post something cool.
infinite goods
I’ve yet to come up with products that falls under INFINITE GOODS. If we have such [depends on product], then there will be no scarcity of those goods as there is infinite supply. I’m not sure if there’s really a perfect economic model that deals with infinity – goods, supply. Demand, yes to a certain point. It will reach its peak and continues to diminish unless that good demanded is basic, one that we can do without.
Please educate me and my 2-cents. 🙂
Re: infinite goods
It seems to me, ipanema, that public goods may be (almost) infinite goods. Currently, externalities are also the source of infinite goods: a car company doesn’t have to consider the price of oxygen when designing a motor, nor do car buyers have to consider the cost of the roads that they use (generally), because they can assume that they can use roads.
All the assumptions and avoided costs, seem to me, to be a possible source of infinite goods.
Maybe?
Re: Re: infinite goods
Thanks for your response. I got your point. Now there’s another word – public goods. From your example, do you mean public utilities, e.g. roads. Am not sure though. 🙂
Re: Re: infinite goods
hmm…public goods, public utilities one and the same? Can we demand more of this and get infinite supply? 🙂
Re: infinite goods
You’re missing the point… Music(As in, copyrighted works) are the infinite input to digital music downloads. Digital music downloads do NOT have a cost of 0 (Bandwidth isn’t free, neither is the electricity to run the servers or the AC to keep them from melting), but they have an infinite resource(Since there is no incremental cost at the headend other than licensing fees, which are one of those artificial limits).
If the music industry had embraced digital distribution and iPod like devices 5 years ago, they could have sold you the device with a free license to all of their music on the device, and simply overcharged for the device. They would have made a KILLING that way, since the devices wear out over time(Something digital data doesn’t do), and people would need to buy new ones.
Re: Re: infinite goods
Without a so-called “You must-be-a-criminal” tax mlike the one in place in Canada, otehrs would have been able to sell MP3 players at a more natural price (cost+a reasonable profit, but no liscence fees), and thus users could circumvent the scheme easily.
“So the trick to embracing infinite goods isn’t in limiting the infinite nature of them, but in rethinking how you view them. Instead of looking at them as goods to sell, look at them as inputs into something else.”
So what exactly are the other goods that music or prescription drugs are inputs for? These isn’t iron ingots or yards of cloth, these are end-user goods, and are consumed (in some cases literally).
And stop harping about “zero”. Even digital music’s marginal cost is not zero, just really small. The result of the “flip side” is not infinite, but just very big.
Re: Re:
So what exactly are the other goods that music or prescription drugs are inputs for? These isn’t iron ingots or yards of cloth, these are end-user goods, and are consumed (in some cases literally).
Can’t give everything away at once. That’s a future post, but if you think about it, it’s not that hard to figure out. Especially with music. Prescription drugs are a little trickier, but not much.
And stop harping about “zero”. Even digital music’s marginal cost is not zero, just really small. The result of the “flip side” is not infinite, but just very big.
It’s effectively zero and effectively infinite. Or, rather, approaching zero and approaching infinite, which is just as good as zero or infinite.
Re: Re: Re:
Ronald Coase blew Hotellings marginal cost theory out of the water over 60 years ago, you’re behind the ball a wee bit Mike… ‘A’ for effort though…
Re: Re:
This is where noobs always fu(k up.
People confuse “cost” with “value.” If it costs virtually nothing to (we’ll use digital music, since this site is forever attempting to legitimize piracy) place a song online, that does not mean that it’s value is also virtually nothing.
Let’s say a song’s value is $5. No matter the delivery medium, the value of song is still $5. The cost may be almost nothing to place it in an area that offers the opportunity to swipe it, but the IP’s value does not get reduced to that same level due the physical placement of it.
Then I’m sure we’ll hear that the song isn’t worth $5 to everyone, so since value scales, cost must as well. This is incorrect. I’m in sales, and forever hear people asking for a discount because the product doesn’t represent their perception of what the product “should be.”
THEN DON’T BUY IT!
yea
it’s the first day classes start back up and i got a total of 30 mins sleep last night. i had/have a nice long argument as to why there really is no such thing an infinite supply or infinite goods or anything you can tangibly touch, experience or is a part of “reality” in any way outside of mathematics. it’s why infinities in physical equations are problematic or it’s their existence that demonstrates instances that aren’t attainable. it’s why you can’t physically demonstrate infinite, you can only give proof to the concept in mathematical terms using sets. so yea, basically no infinities. that’s if anything about what i said made coherent sense (literally 30 mins of sleep :P)
Re: yea
All right physics guy, you and I finally agree on something.
(Paraphrasing Buffet) I can’t eat infinity… in other words, it’s nice to be academic, but this amounts to a hill of beans.
Also, you can’t really call something a good if it’s infinite and it’s free. Goods are used in trade, trade involves money, money involves eating.
MP3's
If MP3’s were free, then the value would be in choosing the best ones. The jukebox would be the valuable commodity.
I can’t work out what encourages the infinite supply of (different) MP3’s. Maybe the jukebox producers could sponsor the production of their infinte product.
While this article was amusing to consider, the solid fact must be stated that there is nothing that is infinite (unless one wants to consider space or time), therefore no price may be zero. A discussion of time is right out as it is a finite thing for humans since we, ourselves, can only live for so long, thereby rendering it finite (and having value). And space, though infinite (in theory) there is only a limited amount of it that is known (explored if you like) and therefore available, thus there is scarcity. One could say that there is an infinite amount of gold in the universe, therefore the price of gold should be relatively worthless, however there is only so much gold available to the market (only so many reserves that have been discovered), therefore there is indeed a price. Knowing that there is an infinite supply of gold out there in the universe would you feel sill for paying it’s going rate on the New York Mercantile Exchange? No, because there is only so much of it that is available at the moment, which is unlikely to change anytime in the near future. Great article guys, but it would pay to stick to IT stuff in this case since clearly someone didn’t think all the way through the article (which took only a high school micro-economics class explanation to shoot down).
Re: Ubiquitous Jones
The argument about infinity and zero comes from economists and execs saying you can’t make money from nothing (or an infinite thing).
The infinite comes from the economic models used to defend an economic model/business plan. It doesn’t need to exist in the ‘real world’. It already theoretically exists within the models.
There are a lot of things in the real world that are a good approximation for infinite (e.g air).
Re: Re:
While this article was amusing to consider, the solid fact must be stated that there is nothing that is infinite (unless one wants to consider space or time), therefore no price may be zero.
Um. Stuff is priced at zero all the time. So, there goes your theory.
A discussion of time is right out as it is a finite thing for humans since we, ourselves, can only live for so long, thereby rendering it finite (and having value).
You are discussing two different things. “Time” which is infinite and “time for a human being to live” which is not.
And space, though infinite (in theory) there is only a limited amount of it that is known (explored if you like) and therefore available, thus there is scarcity.
Again, you are discussing two different things, one of which is infinite, one of which is not.
One could say that there is an infinite amount of gold in the universe, therefore the price of gold should be relatively worthless, however there is only so much gold available to the market (only so many reserves that have been discovered), therefore there is indeed a price.
Again, two different things. The point is what is available in the market is all that matters.
And, as for content, it can be infinitely available — which is the point we’re making with this article.
Great article guys, but it would pay to stick to IT stuff in this case since clearly someone didn’t think all the way through the article (which took only a high school micro-economics class explanation to shoot down).
Except you didn’t shoot it down. You just changed every market to show that for every infinite market, there are related non-infinite markets. Which is exactly the point I was making. So, uh, what’s wrong with the article again?
Re: Re: Re:
You guys are both confusing price with cost. The price is simply what someone directly pays for an item or good. In an entirely free market, price is an expression of the value of the good. Price can be, and often is, zero because the monetary value of the item is essentially worthless. Sometimes it is voluntarily zero, as in a sale where they have free giveaways. Sometimes it is not, as in the case of illegal music downloading, where the producers feel that the good has worth, but consumers do not.
However, items always have a cost, no matter how incremental, that does not equal zero. In the case of a downloadable MP3 this is expressed in the cost of the bandwidth provided by the ISP, the electricity needed to run the computer, the minute fraction of the production cost of the music, and a million other incremental costs. Even added all together, these costs probably have a value of less than $0.25, but it is still there.
Or, rather, approaching zero and approaching infinite, which is just as good as zero or infinite.
not even close… that’s like saying a sequence is just as good as its limit or an exponential / log function is as good as its asymptote. while occasionally the limit is useful … e for example… that still doesn’t mean its just as good as its sequence.
Re:
actually, there’s a good chance that space is NOT infinite. it could be finite yet unbounded depending on which model (or in your terms, theory) you fancy. that’s all… 🙂
to myself
er… those are both backwards… that’s like saying a limit is just as good as its sequence and an asymptote is just as good as its exponential / log function… etc. etc. … please read other post about 30 mins of sleep..
I don't agree...
I might be misunderstanding your point… but I don’t agree that marginal-cost=0 means that the current economic models break down.
See, in high school, they teach you about the demand curve and the supply curve and they tell you about how the equilibrium price is where the two curves cross. How quaint. What they don’t tell you (or, they didn’t tell *me* anyway) is that this isn’t the price that a supplier is really going to charge. The equilibrium price is merely the price at which there will be no surplus and no shortage. But that’s not the price you see in the store.
The concept of marginal-cost=0 is great at illustrating this. With marginal-cost=0, your supply curve is going to be off the chart; you’ll be willing to supply infinite quantities at all prices. In this case, the supply and demand curves *never* intersect. There’s no price for the item that will result in no surplus.
So what governs the price that we see in the stores? Maximizing revenue (well, “profit”, actually… but they’re the same in marginal-cost=0 economics, anyway). To maximize revenue, you don’t need the supply curve…. just the demand curve. For any price/quantity point on the demand curve, the total revenue is the price *multiplied* by the quantity. It’s the area of a rectangle with opposite corners at (0,0) and at the chosen point on the demand curve. You want to maximize that area to maximize revenue. At the extreme ends of the curve, the rectangle becomes very thin (as you either sell a bunch of widgets for almost nothing, or 1 widget for a lot). Yet, somewhere in the middle, the area will be at a maximum… and that’s where you want to set your price. (It turns out that the practice of “price discrimination”, which seeks to get more money for the item from only those people who are willing to pay more, is an attempt to get the *entire* area underneath the demand curve, and not just the area of a rectangle under it).
So, your assertion that marginal-cost=0 upsets the current system doesn’t ring true with me, since pricing is about maximizing revenue, not eliminating surplus/shortage.
As an additional example, look at movie studios. Movies are the quintessential example of something where the fixed cost vastly outweighs the marginal costs… even before the digital age. The $100,000,000 to make “Titanic” exceeds, probably by an order of 1,000, the cost of printing/shipping the reels of film to all of the movie theaters that showed it. So, for movie studios, the marginal cost is negligible…. yet it isn’t free to go to the movies.
So, the movie studios deal with this zero-marginal-cost economics all the time. The whole reason they invested $100M into “Titanic” is because they looked just at the *demand* curve and figured out how much money they expected to rake in from it.
Also, keep in mind that zero-marginal-cost doesn’t mean that it’s the end of scarcity. The scarcity lies in the production of the original item. In traditional economics, we compete with our dollars *against* other consumers like ourselves *over* a scarcity of quantity of an item. With zero-marginal-cost economics, we compete *against* the other things the creator could be producing *over* whether that item is even initially created.
As an example, suppose that Eminem is thinking of going into the studio and recording a new album…. or… he might, instead, design a new mousetrap. Under the “zero-marginal-cost means scarcity doesn’t exist” notion, the album should be free, Eminem won’t make any money, and so he’ll just decide to go work on mousetraps and then, suddenly, there’s *total* scarcity.
Now… you don’t like the record companies and movie studios. I get that. I don’t like them, either. But I think that you’re misrepresenting the economics of the issue in order to make your case against the way they’re behaving these days.
The record companies are behaving they way they are for two reasons. First is because they think they’re losing revenue. Everybody knows that one. The other reason is because they’re under threat from one of the largest effects of the internet: disintermediation. Disintermediation is the process of removing intermediaries or, in plain English, “getting rid of the middle-man”.
With music, record companies are intermediaries that have placed themselves between the artist and the listener, and they will oppose any effort or trend toward a system that doesn’t keep them in the process… even ones in which piracy were eliminated and every artist got their full share of royalties.
Think about that for a moment. The arguments that the RIAA uses against music downloading are that the piracy is causing the poor artists to lose income. Yet, when you imagine it, you realize that a system where all listeners paid artists directly (where piracy were eliminated and the artists were making their full share) would be opposed by the RIAA. That’s when you realize that the things that the RIAA says it’s worried about are *not* what it’s worried about. The RIAA is worried about the RIAA maintaining it’s prominence in an age when it’s looking more and more like a dinosaur.
Re: I don't agree...
I might be misunderstanding your point… but I don’t agree that marginal-cost=0 means that the current economic models break down.
I didn’t say it breaks down. i said the opposite. It works great. It’s those who are asking for gov’t protections and artificial scarcity who believe it breaks down.
What they don’t tell you (or, they didn’t tell *me* anyway) is that this isn’t the price that a supplier is really going to charge. The equilibrium price is merely the price at which there will be no surplus and no shortage. But that’s not the price you see in the store.
I believe you’re misunderstanding the MC = P equation. The point of MC = P is to say that in a competitive market, price will be *forced* to equal MC. Think of it this way, if the market is truly competitive, each side will keep lowering their price until it equals marginal cost.
It’s not instructive, it’s predictive.
And, no, no one wants to price their goods at marginal cost, but a competitive marketplace means they will. The trick is figuring out how to keep ahead of the competition though.
Yet, somewhere in the middle, the area will be at a maximum… and that’s where you want to set your price.
Uh. No. That’s where you WANT to set your price. But the whole idea of a competitive market is that you cannot set your price there.
The point I’m making is that the market is becoming competitive, and the companies that don’t realize it are going to be in trouble.
So, your assertion that marginal-cost=0 upsets the current system doesn’t ring true with me, since pricing is about maximizing revenue, not eliminating surplus/shortage.
Again, you’re talking about pricing from a desirable standpoint, not a competitive market standpoint.
As an additional example, look at movie studios. Movies are the quintessential example of something where the fixed cost vastly outweighs the marginal costs… even before the digital age.
Sunk costs. Fixed costs are sunk and have no play in pricing decisions in a competitive market.
As an example, suppose that Eminem is thinking of going into the studio and recording a new album…. or… he might, instead, design a new mousetrap. Under the “zero-marginal-cost means scarcity doesn’t exist” notion, the album should be free, Eminem won’t make any money, and so he’ll just decide to go work on mousetraps and then, suddenly, there’s *total* scarcity.
No. That’s the point I keep making. There are tons of OTHER ways to make money. There isn’t total scarcity at all. Even if the music is free, there are plenty of things to sell.
Now… you don’t like the record companies and movie studios. I get that.
No, that’s not it at all. I love the record companies and the movie studios. I want them to make more music and movies, because I love music and movies.
I just think their current strategies LIMIT their market, and SHRINK their potential to do so.
This is about helping them learn to capture a much bigger market.
The RIAA is worried about the RIAA maintaining it’s prominence in an age when it’s looking more and more like a dinosaur.
Indeed, but there are opportunities for it to change with the times.
Re: Re: I don't agree...
Sunk costs. Fixed costs are sunk and have no play in pricing decisions in a competitive market.
Sunk costs are irrecoverable costs. After they have been incurred (and they are incurred just one time each), they play no role in the pricing decision, because it’s just about making the best of the situation. But, fixed costs are sunk costs only for a given production cycle. They can be avoided by leaving the market, and thus THEY CAN INFLUENCE WHETHER OR NOT A PRODUCER STAYS IN THE MARKET!
An example of a sunk cost is a non-transferable, government-granted license which allows access to some resource (think logging or fishing license). An example of fixed cost is rent for your workspace. Within a given production cycle, rent is a sunk cost, but next time you have to pay it, you could instead choose to close up shop and avoid the cost, and potentially make more money (or lose less, as the case may be).
just a few things
@ Joe Emenaker
“With marginal-cost=0, your supply curve is going to be off the chart”
Well, the supply curve is the same as the marginal cost curve, and, given that marginal cost = 0, the supply curve simply lies on the x-axis (y = 0). So, it’s not really off the chart at all. The price at the intersection point will be 0, and the quantity demanded will be wherever the demand curve crosses the x-axis, i.e. whenever Britney Spears’s latest song stops being a “good” and starts being a “bad”.
I do really like your point about bidding for the producer’s time, though.
@ Mike
I can’t wait ’til you explain that point (and I imagine it must be related to that final good for which music is an intermediary).
@ PhysicsGuy and a lot of others
Please stop arguing about whether it really is an infinity, and bringing up all sorts of unrelated bits of set theory and cosmology. I can copy-paste a song a lot of times on my computer, and it costs just about nothing. So if supply is a googolplex or infinity, I don’t really care, and I think an intelligent discussion can be had without getting in to that mental masturbation shit.
So if supply is a googolplex or infinity, I don’t really care, and I think an intelligent discussion can be had without getting in to that mental masturbation shit.
copy and paste isn’t an economic activity. that’s plain stealing! no need for all those d-s curves to explain all online thieves.
just a few things
Please stop arguing about whether it really is an infinity, and bringing up all sorts of unrelated bits of set theory and cosmology.
mike even stated it isn’t really infinite well after the fact of using it and his argument because infinity is the limit is that “infinite is just as good” … it’s not. (1+1/n)^n power is not the same as e… e is the limit but that does not mean when speaking about the sequence you call it e, it’s not e it’s (1 + 1/n)^n power… e is merely what that approaches…
and my inclusion of cosmology and set theory as examples were to demonstrate the issues with infinite. i could bring up a whole debate about relativity and moving at the speed of light and how the infinities show us IMPOSSIBLE situations merely because infinite pops up.
Bravo Araemo
Someone who gets it! Mike I feel for you. I have a very hard time reading these comments because they lack creativity or insight into the situation. Arguing over whether there are markets with infinity supply and costs of zero is irrelevant, and no that doesn’t make the academic argue of infinity supply and zero cost irrelevant.
As we can see in the digital music industry, an understanding of infinite supply and zero cost as Mike is writing about could lead to better business models and less economic pain. The supply and cost of digital music are substantially less than music companies are willing to recognize, and trying to induce barriers into the market won’t delay the inevitable, which is a drive towards the marginal cost and supply of digital content. For all basic intents and purposes, this is as good as infinity and zero, but even if it’s not realistically that, it’s breaks the thought process out of the box as they say and draws one into a creative state where creative options are required.
Re: Bravo Araemo
have a very hard time reading these comments because they lack creativity or insight into the situation. Arguing over whether there are markets with infinity supply and costs of zero is irrelevant, and no that doesn’t make the academic argue of infinity supply and zero cost irrelevant.
lol. Careful with economic terms to explain economic theories.
By the way, you don’t sound like an economist. I also have a hard time reading your business comment.
First, define what’s considered infinite in Economics. In the real market, there’s no such thing as infinite supply because there’s no such thing as a perfect product and a perfect economic model.
Please do not use economic terms simply to discuss digital music. That’s a shallow example. Use economic terms properly. They have correct usage.
hope this isn't too late
I might be a little late on this reply, but I see you don’t get it EM: “In the real market, there’s no such thing as infinite supply because there’s no such thing as a perfect product and a perfect economic model.”
The whole freak’n point of discussing zero and infinity isn’t that there is a real situation where this happens in the real market. “Arguing over whether there are markets with infinity supply and costs of zero is irrelevant, and no that doesn’t make the academic argue of infinity supply and zero cost irrelevant.”
An infinite supply would mean a marginal cost of zero, or as the change in total cost nears zero and the change in quantity nears infinity (n+1), you get a marginal cost nearing zero, or as good as zero. I don’t see how hard that was to figure out.
This works with digital music because it costs nearly nothing to reproduce that digital music and there’s basically nothing stopping us from making infinity copies of that. Hence marginal cost should be driven towards zero. Therefore, the business model of the music industry is heading towards broke whether they like it or not because the market as a whole will drive the price towards that margin cost, which is for all intents and purposes zero.
Now, I know zero won’t actually exists, but this is a way of telling people in the industry to find other revenue streams. What the industry has come up with to fight that market trend is instituting barriers such as DRM and suing people over rights those people fairly have (fair use rights).
If you don’t like how I’ve used my economic terms and mixed them with my real world terms, then point out the faults, which you didn’t do in your last point. You simply called it shallow…
re: hope this isn't too late
Oh I got your point. It all boils down to terminilogies actually. Usage is more on business instead of economics.
Accdg. to your explanation, digital music is infinity supply. Do you think that technology will stay the same in the future for music industry? Not sure if in the next 5-10 years it’s still digital music. What if there’s a new trend different from what’s in existence? Not sure though.
Air is infinite but it’s not an economic goods. I still hold the notion that there’s no infinite goods. Otherwise, the we will be living in a perfect world. All demands are met by infinite supply. However, in reality that’s not what’s facing us.
Cheers!
Sure...
I suppose this whole thread is an elaborate treatise on why it’s OK to pirate various forms of media.
Wht happens when all goods become infinite, a la the Jetsons?
infinity?
infinity?
Infinity is NOT your friend in Economics, especially media economics.
bottom-less profits like Topix claims, taking away ethics, is not acceptable.
when corporations engage in people businesses, like media, like Topix, they need to CONSIDER people, and their protection.
People over profit, absolutely.
check out my comments if you care to, on techdirt’s sell-out Topix post here: http://techdirt.com/articles/20100820/18033710718.shtml#c275
Not economics
The definition of economics is the study into the efficient allocation of scarce resources, so if the resource isn’t scarce it isn’t economics. In any case, there can be a price of zero and scarcity if there are no clear ownership rights, which is economics. I don’t think we have trouble with infinity, it just doesn’t make logical sense because (as a planet) we have limited resources.
I am not very good in economics. I cannot fully understand what you mean by “infinity” and “zero.”
In response to Joy comment N49. Infinity means an unlimited abundance of some hypothetical asset or resource for utilization(think about the United States Federal Reserve ability to create as much money as it deems necessary based on macroeconomic domestic and global factors reality while zero implies in pragmatic terms that something is so totally scarce that it is unavailable for consumption in any conceivable form. However, in mathematical terms zero multiplication can mean that if a numerical asset is multiplied by zero than it becomes well- zero while also simultaneously being rendered into vast infinity. Totally bordering on being driven into psychotic perception of reality type of construct indeed with which to proceed, must I admit…-:) It may be somewhat similar to quantum physics construct where some particles which scientists have striven to measure and evaluate change as soon as an attempt to do so takes place and therefore, that strange object of interest is both existent in abundance and also nonexistent in the way we perceive it because once observed it is altered instantaneously. Think about it on another terms. You as an individual are totally unique and distinguishable from the rest of 7 billion people on this planet while in the infinite universe logically, there is an infinite number of you repeating the same life under totally identical circumstances who also have been given such opportunity. We are all scarce and unique on this planet in our “reality” while in the context of an infinite universe we are all similar to germs living under the rim of the toilet marveling about our greatness while being no different from roaches on the grand scale of things. I think theologically Hindu kind of get it intuitively and maybe that is why some of the greatest mathematicians hail from that country.
there are no infinities in economics
The abundance of a physical commodity is limited by the finite size of the earth. The abundance of computer information is limited by thermodynamics. You can get away with your hand-waving argument about infinities because the mathematics of x ∞. I will also point out that there are no equations presented. You cannot sway me without some equations.
Solution
As the supply approaches infinity, the demand and therefore price approaches zero.
The cost of an infinite good is the overall cost C divided by the number of sales of said good N.
At any given sale, the cost of the good is C=C/(n+1)
This means that as long as no more costs are added to the overall cost, the cost will ALWAYS be decreasing.
Re:
Life. Or if that is too touchy-feely for you: productivity. Music enhances my life and increases my productivity (in part because of my choice of music, admittedly); prescription drugs may make the difference between life, and death = zero productivity (zero again!)–arguably negative productivity since the body must be rendered biohazard-safe (yes, a real issue with MRSA!) So, these are inputs to life/productivity, i. e., everything!
Bonus question: So, what kind of society legislates to allow a lowering of productivity? (A failing society, IMNSHO.)
Consider EA: Considering the cost of server development and their abysmal initial performance, were they better off than creating SimCity [5] along proven lines without coercive DRM? I will probably never buy SC5 (despite buying all privious versions), however low it’s priced, since it does not provide the same experience as other SC versions. Lose for EA!
As Mike suggests, some things are effectively infinite, or zero. Do you know of a company that tracks capital investments down to individual paperclips? If so, I suggest shorting that stock. Some things are so cheap, they are less valuable than the cost to track their cost. Consider the hoody/T-shirt and mug business model: would music companies have been more profitable making friends with their customers instead of demonizing (some) of them? Cable companies are similar: I’ll do anything to defeat them; they can try suing YouTube/Google or Netflix, or my public library, which carries DVDs and CDs as well as books–good luck with that!
Zero. What is the cost of watching surf or a sunrise or sunset? Zero. Except for attention/opportunity cost; a cost of every product. The business/standard accounting cost is zero; not a fraction of a mil more.
Really important point here: Accounting is not Economics! Any politician who harps on accounting or I-ran-a-business should be ignored–they do not have a ghost of a clue.