...by Daniel Szego
"Simplicity is the ultimate sophistication."
Leonardo da Vinci

Saturday, March 4, 2017

On the supply curve of the IT goods

Supply goods of the different IT goods work actually differently from the classical material goods. The major different is that an IT good, software or service can usually be replicated to an infinite number of copies without efforts or costs. As a consequence the supply curve of a classical IT good is far from linear, it has rather the characteristic of having a "tipping point" or singularity point at which it is already profitable to produces, so the practical zero supply becomes infinite (Figure 1).

Figure 1. Supply curve of IT goods. 

Certainly, real life markets are more complicated, they usually do not only have one suppliers both usually many who can provide several differentiated products and services on different price niveau. Despite we would expect that if the market is well characterized and homogeneous enough, there is a small singularity area where the practically zero supply becomes very fast infinite.