I agree with marginal cost pricing, but one is hard-pressed to give me an example of a zero marginal cost for anything. If you are putting something on the web, its marginal cost is never zero. You cannot even have a presence on the web at zero marginal cost.
This might be fun to think about and debate but it is simply wrong.
Marginal pricing is a long-term phenomenon that happens after the original entrepreneur has made “above-average” profits for a period of time, before that profit is competed away. That service will not be profitable anymore, but you can bet that the entrepreneur will then invent some add-on product that will make some more “above-average” profit, and the cycle continues. Nobody will stay in business for too long if they make no money above marginal cost, simply because of the opportunity cost of their time employed in a more profitable endeavor.
You’re right — there is no “zero marginal cost”. I mentioned the “time preference of money” (AKA “interest”, or “dividends”) and risk — I should have added opportunity costs.
Still, the notion of 1% of users of a premium service cross-subsidizing the ordinary service for the other 99% of us does seem to be happening already. So long as the 1% (or whatever) is paying for the opportunity costs, interest, risk, etc. — then it would actually be a sound business model.
You’ve prompted me to think of another problem — the huge threshold effect between a “free” service and the paid premium service. In practice, there will probably have to be tiers of “premium” service — like there is with cable or satellite TV — which would result in a larger percentage of people paying something (just like the “good ole’ days”) and the 1% paying a lot more.
Hey, econjack - are you a Sowell fan?
I love his way of looking at incentives in every issue and showing how perverse incentives lead to bad outcomes for most folks.