Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Priced and Unpriced Online Markets

Priced and Unpriced Online Markets Abstract Some online resources are free and others are not—but it can be hard to predict which resources are in which category. In some cases, users are charged for things such as web-based e-mail, wireless Internet access, and software, while in other cases, they aren't. Zero prices offer important benefits, even relative to small positive prices. For one, fee-free access reduces transaction costs—eliminating the need for billing systems as well as, in many cases, account setup, usernames, and the like. Furthermore, zero prices seem to create an environment of experimentation and progress for products and consumers. Finally, consumers overwhelmingly favor zero-price products, even beyond what might be predicted by their ordinary efforts to maximize consumer surplus. Yet experience in other contexts offers cause for concern. Although marginal costs may be near zero for many levels of use of online resources, costs generally eventually increase as usage nears a capacity constraint given by technological capability or system design. More generally, experience in other contexts repeatedly reveals overconsumption, scarcity, and even hoarding when resources are provided without charge. With competing forces both supporting and opposing zero prices, typical Internet-related activities—like surfing the web, web searches, and e-mail, along with behind-the-scenes practices like domain names and the allocation of IP (Internet protocol) addresses—present a natural context to reevaluate our sense of the tradeoffs that arise between free and a positive price. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

Priced and Unpriced Online Markets

Journal of Economic Perspectives , Volume 23 (3) – Aug 1, 2009

Loading next page...
 
/lp/american-economic-association/priced-and-unpriced-online-markets-FXv1AUP2lF

References

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
American Economic Association
Copyright
Copyright © 2009 by the American Economic Association
Subject
Symposia
ISSN
0895-3309
DOI
10.1257/jep.23.3.21
Publisher site
See Article on Publisher Site

Abstract

Abstract Some online resources are free and others are not—but it can be hard to predict which resources are in which category. In some cases, users are charged for things such as web-based e-mail, wireless Internet access, and software, while in other cases, they aren't. Zero prices offer important benefits, even relative to small positive prices. For one, fee-free access reduces transaction costs—eliminating the need for billing systems as well as, in many cases, account setup, usernames, and the like. Furthermore, zero prices seem to create an environment of experimentation and progress for products and consumers. Finally, consumers overwhelmingly favor zero-price products, even beyond what might be predicted by their ordinary efforts to maximize consumer surplus. Yet experience in other contexts offers cause for concern. Although marginal costs may be near zero for many levels of use of online resources, costs generally eventually increase as usage nears a capacity constraint given by technological capability or system design. More generally, experience in other contexts repeatedly reveals overconsumption, scarcity, and even hoarding when resources are provided without charge. With competing forces both supporting and opposing zero prices, typical Internet-related activities—like surfing the web, web searches, and e-mail, along with behind-the-scenes practices like domain names and the allocation of IP (Internet protocol) addresses—present a natural context to reevaluate our sense of the tradeoffs that arise between free and a positive price.

Journal

Journal of Economic PerspectivesAmerican Economic Association

Published: Aug 1, 2009

There are no references for this article.