Class reflection #2

9 07 2008

We discussed in class yesterday elastic and inelastic pricing. We identified music and food as examples of elastic goods and oil and electric power as inelastic goods. As the conversation evolved into that of scarcity and atoms vs. bits, Kathy touched upon software being very expensive, not just in terms of sales price, but in terms of compatibility to other products and time to learn the software. I’d like to further explore software and elasticity.

Software enhances productivity, or at least we’re sold on the idea it can. Although time is immediately scarce in learning new software and reconciling incompatibilities, software should save us time in the long run, thus reducing scarcity of time. These values lend to software’s inelasticity. Further, like other “infrastructure goods,” software, for the time being, has no substitution. The “cloud” is slowly evolving into an alternative for some software (Google Docs instead of Microsoft Office, of Office Live instead of traditional Microsoft Office for that matter), but we have yet to seem mainstream adoption of any alternatives to software and thus prices seem inelastic.

As we’ve discussed in class, the cost of producing copies of Vista is just pennies, yet it costs several hundred dollars in stores. Popular video games still cost up to $100 and the most coveted photo and video editing software can cost consumers more than $1,000. Software companies seem to be able to charge high prices with low marginal costs and consumers aren’t deterred to buying with these prices and price increases.

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