In my ClickZ.com column 11 months ago, I wrote:
- At the center of any market is the price mechanism competition creates. There’s always some difference between buyers’ and sellers’ desired prices. In a functioning market that difference is minimal, or at least negotiable; buyers and sellers agree on pricing. Sales result. Economists call this a price equilibrium.
Online, price equilibrium appears to exist in several markets, notably games, greeting cards, and dating services. Sellers offer services at prices agreeable to buyers. Millions of consumers use these markets. Most online content revenues are from these markets.
What happens when the difference between the prices sellers want and what buyers are willing to pay is too different? A malfunctioning market.
And in the subsequent column, I specifically examined the malfunctioning economic of online publishing:
- The result when the difference between the sellers’ and the buyers’ prices is too vast? A malfunctioning market. Like the online periodical market targeting consumers.
This month, Eli Noam, the professor of economics and finance at Columbia University and director of its Columbia Institute for Tele-Information, made a similar analysis, in which he notes the volatility of this economics:
- “Thus, the information economy is likely to be a volatile, cyclical, unstable mess. The problem is not the ‘creative destruction’ one would expect in an innovative economy, but the structural instability of an economy whose major products have very low marginal costs and hence prices, but are not low-cost to produce. The notion that an information-based economy will be inherently prosperous must be revised for a less optimistic scenario.”
Good reading for publishers who want to charge for their online content.