Recognizing That Just About Any Product Is A Bundle Of Scarce And Non-Scarce Goods
from the fairly-important dept
After skipping a week, I wanted to get back on track (and hopefully get closer to finally wrapping up) the series of posts I’ve been writing about economics of non-scarce goods. In going through some of the debates and arguments over the past posts, I think one of the key things that people have trouble grasping is the fact that there are different components to anything that’s being sold — and that any product is really a bundle of a variety of things, which quite often have both scarce and non-scarce components.
So, if you’re buying a book, you’re buying the paper and the binding, as well as the words printed inside. However, you’re also buying the satisfaction or utility that you get from reading (or perhaps just owning the book). Or you may be buying the benefit of being seen with the book or being able to talk with others intelligently about having read the book. Or it may be an investment, where you are buying the ability to resell the book. This applies to just about any product. If you’re buying a couch, you’re not just buying the wood, stuffing and fabric, but the benefit of having the couch and being able to sit on it. You’re buying the belief that it will look good in your home and match with the rest of your living room. If you buy a car, you’re buying the materials that make up that car, but also the transportation and freedom it provides you vs. the alternatives. If you’re buying medicine, it’s not just the pills that you’re buying, but the relief that they provide. Most people recognize this intuitively, but sometimes in these discussions people forget that, and focus in narrowly on the core product itself that people think they’re buying (or sellers think they’re selling).
What’s noteworthy is that bundle may be different for different people. Some people buy houses solely as investment properties, while others intend to live there. The point, however, is that every product is a bundle of different components — and you can usually break those components down into scarce and non-scarce categories. In thinking about how to market any product, sellers are intuitively calculating the value of that bundle of things, even if they focus on just selling you one aspect of the bundle. Each of the different components (both the tangible and the intangible) are part of the “resources” or “inputs” that make up the product that’s being sold.
Of course, with any product, the producer of that product wants to reduce the costs of what they’re selling, while increasing the value to buyers. One of the easiest ways to do this is to pump up the non-scarce parts of what’s being sold — because that’s a very cheap way to increase value. Even if it had a large fixed cost upfront, once it’s created, it costs nothing additional (no marginal cost) to make use of that non-scarce good to help promote the bundled scarce goods and make them worth a lot more. So BMW makes good cars (a scarce resource), but the value is even higher due to BMW’s brand (a non-scarce resource). Last week we noted that movie theater boss Marcus Loew understood this years ago when he said: “We sell tickets to theaters, not movies.” He recognized that they were using a non-scarce resource (the movie itself) to make it possible to sell the scarce resource (seats in the theater). As you look around, you’ll begin to notice that you can find these types of things in almost any good. A candy store owner uses the non-scarce resource (enjoyment) to make the scarce resource (the candy) worth more. As long as you can bundle non-scarce resources to make scarce resources more valuable, there are ways to make money. The trouble comes about when you try to start selling strictly non-scarce resources by themselves… but we’ll save that discussion for later.
If you’re looking to catch up on the posts in the series, I’ve listed them out below:
- Economics Of Abundance Getting Some Well Deserved Attention
- The Importance Of Zero In Destroying The Scarcity Myth Of Economics
- The Economics Of Abundance Is Not A Moral Issue
- A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
- A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
- Why The Lack Of Scarcity In Economics Is Getting More Important Now
- History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers
- Infinity Is Your Friend In Economics
- Step One To Embracing A Lack Of Scarcity: Recognize What Market You’re Really In
- Why I Hope The RIAA Succeeds
- Saying You Can’t Compete With Free Is Saying You Can’t Compete Period
- Perhaps It’s Not The Entertainment Industry’s Business Model That’s Outdated
- An Economic Explanation For Why DRM Cannot Open Up New Business Model Opportunities