IDEAS home Printed from https://ideas.repec.org/a/aea/jecper/v23y2009i3p21-36.html
   My bibliography  Save this article

Priced and Unpriced Online Markets

Author

Listed:
  • Benjamin Edelman

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.

Suggested Citation

  • Benjamin Edelman, 2009. "Priced and Unpriced Online Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 21-36, Summer.
  • Handle: RePEc:aea:jecper:v:23:y:2009:i:3:p:21-36 Note: DOI: 10.1257/jep.23.3.21
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.3.21
    Download Restriction: no

    References listed on IDEAS

    as
    1. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters,in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90 National Bureau of Economic Research, Inc.
    2. Alvin E. Roth, 2007. "Repugnance as a Constraint on Markets," Journal of Economic Perspectives, American Economic Association, pages 37-58.
    3. Starkie, David, 1998. "Allocating airport slots: a role for the market?," Journal of Air Transport Management, Elsevier, vol. 4(2), pages 111-116.
    4. Milton L. Mueller, 2004. "Ruling the Root: Internet Governance and the Taming of Cyberspace," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262632985, January.
    5. Kristina Shampanier & Nina Mazar & Dan Ariely, 2007. "Zero as a Special Price: The True Value of Free Products," Marketing Science, INFORMS, vol. 26(6), pages 742-757, 11-12.
    6. Parry, I. W. H., 2002. "Comparing the efficiency of alternative policies for reducing traffic congestion," Journal of Public Economics, Elsevier, pages 333-362.
    7. David Levinson & Andrew Odlyzko, 2007. "Too Expensive to Meter: The influence of transaction costs in transportation and communication," Working Papers 200802, University of Minnesota: Nexus Research Group, revised Feb 2007.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bellemare, Marc F. & Holmberg, Andrew M., 2010. "The Determinants of Music Piracy in a Sample of College Students," MPRA Paper 23641, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:23:y:2009:i:3:p:21-36. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.