All digital goods have infinite supply and yet even for goods that can be acquired for free (say Ubuntu distributions), there are markets (the $10 starter DVD). Once a digital good is 'produced' replication costs and distribution costs approach zero, or at least to a marginal cost of zero given the sunk cost of the infrastructure (one pays of internet bandwidth but doesn't normally charge it against digital purchases).

So my claim is that in a digital marketplace the quantity supplied of a good can meet any quantity demanded. Thus classical Keynesian economic theory doesn't work well. Since by the math if supply is infinite even selling for a small cost can give good returns (cost to produce is now zero after all) there is no compelling reason to sell at a fixed cost, but demand isn't infinite.

So why do people pay for 'free' information? (and yes some don't, this isn't a piracy discussion). Given these sorts of questions I've been working on what it is that gives information value. What are the economics of information?

One answer to that explains Google's success. Information can become valuable if it is timely, which is to say it meets a need in a very time efficient way. So high frequency stock market traders pay through the nose to know a few milliseconds earlier what the trades are. Google sells the fact that someone has just looked for <query terms> to someone who thinks they have an answer related to <query terms>. Someone is looking, the advertiser can provide, so what makes a search advertisement so valuable is that the intent behind the search is 'known.' Previous venues tried to sell the 'kind of people who are looking at these pages' the demographics. A less precise form of targeting but similar.

But back to the Parse discussion, one of the factors that appears to influence information value is its rarity, or difficulty in obtaining. So a picture of some celebrity's new baby is 'rare' and 'hard to get' so a paparazzi gets a big payday when they get that picture. But a picture from the agent's press packet on the birth? Not so much.

Applications seem to be more valuable if they are perceived as being 'hard to write' (perhaps this is a variation on bike shedding) than ones that are perceived to be 'easy.' And that affects personal statements of value as well, how many developers refuse to buy an app they feel they could write in a weekend and yet non-developers flock to it?

My claim is that classic economic supply and demand models don't apply to digital goods because the supply of the goods can be infinite and the classic model suggests prices would go to zero in that scenario.

> So why do people pay for 'free' information? (and yes some don't, this isn't a piracy discussion). Given these sorts of questions I've been working on what it is that gives information value. What are the economics of information?

Of course it might be interesting to ask how digital goods are different from tangible objects in economics. But this particular question is made on a wrong assumption. Digital goods can be scarce and hence not "free" by definition.

> But back to the Parse discussion, one of the factors that appears to influence information value is its rarity, or difficulty in obtaining.

Yes, but that's no different from the classical concept of scarcity.

> My claim is that classic economic supply and demand models don't apply to digital goods because the supply of the goods can be infinite and the classic model suggests prices would go to zero in that scenario.

No, no, it doesn't suggest that. That's the problem with your argument. The theory might say that that happens in a world of "perfect competition", which is a very strong assumption. As long as someone has the publishing rights for a digital good, its low marginal cost doesn't imply higher supply and lower price.

This is not really limited to digital goods. Take a hardcover textbook or a cancer-treatment drug: its marginal cost might be a few dollars but given limited supply it can still sell for over $100.