The Durable Goods Problem in Software

Being a monopolist isn't all it's cracked up to be. Produce a durable good, and you're functionally competing against yourself.

For a Durable Goods Producer with Market Power:
Problem 1: durable goods can be re-sold. If re-sale purchases are cheap and reliable, why buy new?
Problem 2: after selling at high price, the firm wants to reduce price to get more customers. So, if you're a customer, you shound wait for the lower price to purchase... If you're the firm, how can you ever manage to sell at the high price?

Software is perhaps the ultimate in durable products. Once you have the program installed, it never wears out. Resale is prohibited by license agreements and made impractical by other technical means, but the second problem remains. How can software companies prevent consumers for holding out and demanding cheaper prices?

Big players in the software industry have found various ways to overcome this durable goods problem.

1) Bundling. Most famously, Microsoft got its big start by combining the Windows operating system with IBM machines. While the software may be durable, the computer most definitely is not. Replacement of consumer products guarantees repeat customers for their OS. Waiting doesn't help the consumer, because they retailer they purchase from will have to get a copy of Windows regardless.

2) Ongoing payment schemes. Subscription fees, downloadable content, and micro-payments have been used successfully by companies from Blizzard to Zynga. In addition to providing a check against piracy, each of these pricing methods ensure the up-front cost is only a small part of what the consumer pays for that software. Holding out for a lower price on the base product doesn't exempt someone from paying for the extras.

3) Build price discounts into the sales model. Some video game marketing tools (I'm thinking of Steam, from Valve software) build semi-frequent sales into their distribution channel. Users can buy a new game when it comes out at full price; wait a few months for the game to go on sale at 33% or 50% off; or wait several years to get it at deep discount. The amount paid depends on the gamer's urgency in wanting the game. It's temporal price discrimination which separates out high- and low-demanding users.

Software companies still end up competing against themselves to some degree, but with these sorts of pricing mechanics they're able to keep revenue higher than it would be otherwise.

Paper books are a depreciating asset

...at least for a grad student.

Why? Any time I move, I have to pay to transport them. Shipping fees aren't cheap, plus packing and carrying books is a lot of work. Given that I will definitely be leaving Fairfax after graduating (cost of living is too high to stay permanently) and will likely end up moving several times after that before settling down, that's a lot of money and effort that might go into lugging paper around with me.

At first, I was hesitant about e-books. The feel of a good book in the hands is hard to replace. But, a Kindle (or other e-reader) with a cheap cover is a decent imitation, and a lot more convenient. The only real downside is inability to re-sell the book when I'm done reading.

Basically, it's time to go digital.

My new policy is to only buy paper books when (a) there's a chance I might be able to sell it later for a decent amount of cash, as is the case with a textbook or (b) the paper copy is much, much cheaper than the electronic version.

It'll be a few years before I'm moving again, but there's no time like the present to start downsizing (just don't take me out of context on that line). Right now I have around a hundred books and several years worth of National Geographic magazine. It's a paltry collection compared to some of my professors, but still more than the average person needs.

The punchline: if you want any of my books, I'll sell them cheap. Check out My Bookcase and make an offer. Even if it's low, I won't be insulted - cover the cost of shipping plus a little bit more and I'm satisfied. If you're already settled in and won't be moving soon, or don't find hauling paper to be as much of a hassle as me, then an exchange can make us both happy!

Is Hoarding a disease, or just un-economic? Some advice for the cluttered.

Who doesn't need 70,000 empty beer cans?

People with their finger on the pulse of reality TV (like myself) are shocked and disgusted by the spate of shows surrounding the issue of "hoarding." For the unexposed: the premise of such a show is that people with a serious clutter problem ("hoarders") ask for help from the reality television deities to clean their places. Then, the audience gets to be amused and disgusted as the hoarder whines, moans, and otherwise impedes the cleaning crew from taking out the junk. Apparently it's a successful formula, because several different networks are now doing "Hoarder" themed shows.

Economics does a lot of theorizing about consumption, and generally the assumption is that more = better. Presumably, a person will only buy something if it makes them happier or brings them some sort of utility. TV about hoarders is a case study in diminishing returns from possessions. In other words: the first 10 antique lamps and teddy bears were wonderful, but after there are 500 and you're sleeping on a single chair while living in fear of death by trash-alanche, then more stuff has become a dis-utility.