The Zero Profit World

| Sat Apr. 30, 2011 11:49 AM EDT

Matt Yglesias:

In a fully competitive market, products should be sold for the marginal cost of producing a unit. And in the software world, the marginal cost of producing a unit is zero. Therefore, in the long run software should be free and nobody should make a profit.

This is an odd use of the word "should," I think. And rather than being an argument for free software1, it's really more of an argument that either (a) economic "efficiency" is overrated or (b) fully competitive markets are overrated. If nobody ever got to make a profit, after all, the world would be a pretty dreary and backward place.

But then, I suppose I'm biased. The marginal cost of producing blog posts is indistinguishable from zero, and I'd just as soon make more than zero dollars producing them. So I'm not really a fan of long run profits trending to zero, even in the nonprofit world.

1For reasons that escape me, this argument is almost always employed as a criticism of industries like software and music that have very low marginal costs. I suspect ulterior motives.

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