Re: "Bill makes all the important decisions here."

Mike Masnick (
Sun, 18 Jan 1998 20:42:31 -0500

Since this doesn't appear to have been FoRK'd, I'll take the liberty of
doing so, with my comments.

At 05:13 PM 1/18/98 -0800, you wrote:
>Mike Masnick sometime around 4:52 PM -0800 on 1/18/98, hammered this out:
>> And, to Tim, if this is so blindingly simple, why do so many people not
>> understand it?
>Because people are idiots.
>No really, because this type of economic model doesn't exist in the real
>world. The 100,000 Playboy sells for the same price as the first. Producers
>of product (there is an exception that I'll get to) expect people to pay
>for the product.

Right. I never said that the Price for each individual consumer equals
that individual's MC. The *price* charged to all consumers equals the
marginal cost to the last individual. Plus, with this example you are
dealing with an actual good, that does indeed have a marginal cost. It
does cost the paper, printing, and distribution costs for that last magazine.

I will admit that the price of a Playboy may not actually equal the MC,
which makes sense, because Playboy is not faced with perfect competition
(as is the case in most situations). But that still doesn't wipe out the
economic model. It just suggests a place to start from and modify.

>The one, actually two exceptions are Porn and a economic model based on
>Television. Television is a lot like the Internet. It's always on, it's
>free for the most part, and you can waste many many hours and become pretty
>addicted to it.

This still doesn't go against what I said. In the case of both Television
and the Internet, they are non-excludable and non-depletable, and the
marginal cost to provide for an additional viewer is zero.

>However the majority of businesses aren't in the business of broadcasting
>and they don't think that way. Of course Television is a advertising based
>model as you propose the Internet be. The problem comes down to who gets
>the advertising $. Internet fee's are never going to equal Seinfield ($200
>million profit per year) but they will get better. The key is going to be
>to have a site that fits into a certain category and then advertising is
>bought on that site per category. As an example health, consumer items,
>news, etc.
>Also the example of the WSJ is a good one. Certain specialized sites will
>make money.
>Do I really have to explain why porn sites make money to anyone here?
>Thought not....

I think we basically agree here. The only thing is, that I see exactly how
all this fits in with the simple economic model I described, and you,
apparently, don't.

understanding of what works and what doesn't on the internet. What it does
is let you look at what the economic conditions are, and then to make
decisions based on that. As far as I can tell, it works very well. It
doesn't necessarily tell certain sites not to charge, it just suggests,
that if they have competition that can serve up the same info, with the
same MC=0, sooner or later, the cost will go to zero, and the ones that are
expecting to survive by charging will get screwed.