Re: Slate covers everything

Mike Masnick (
Fri, 24 Apr 1998 10:51:00 -0400

At 10:18 PM 4/23/98 -0700, Dr. Ernest N. Prabhakar wrote:
>Hmm, perhaps the issue is giving away hardware vs. software. In some
>sense, giving away software cost effectively nothing per unit (ignoring
>sunk R&D costs), so it is easier to think of it as dumping. Giving away
>hardware - umbrellas - does involve actual cash, so it seems more self

No, that's exactly right. We've discussed this before, haven't we?
Software has a marginal cost of zero (sunk costs are sunk) and therefore,
in a perfectly competitive environment, they will be forced to sell at the
economically efficient price (P=MC), which is zero. So, you absolutely
should feel offended at people charging for software (I say to a product
manager of software...). Basic economics...

Slate has the model a bit screwed up, though. They're charging you for
information, which has a marginal cost of zero, and giving you an umbrella
for free (which has a marginal cost of a few bucks, I imagine). The only
way you can get away with charging for something that has an MC=0 is if you
have no competition. This could be a monopoly, or it could be something
else. For example, with the Wall Street Journal, many people feel that
they can't get that sort of information and commentary anywhere else
rapidly enough (given enough time, sure). While some disagree with me, I
don't feel Slate gives me enough value that I can't get elsewhere (which is
why I won't pay for it). I'm still waiting for Slate to realize they can't
go far on the subscription model...

>Then again, what about Intel giving away PCs to higher education? Or,
>say, cable comanies giving away DTV converters that don't work with DBS
>satellites. That certainly would concern me. But for some reason, those
>don't bother me as much.

That's somewhat different. There, they're trying to involve network
effects to build a monopoly. They figure that the more people who use
their products, the more value their products will add to everyone, so at
some point people won't be able to do without their particular product.

-Mike (can you tell I once studied economics?)