>> You talked about market clearing and I'm not sure the concept makes any sense in the absence of a marginal cost of production.
> I would respectfully disagree. Market clearing is I think technically the price for the next unit of production, but even in a world of zero marginal cost (not quite true) then the capital cost still needs to be paid back (laptop, time spent coding flappy up and flappy down). So perhaps the clearing price is the expected number if sales divided by capex?
This is closer to reality (and further from economic theory but that is a different rant[0]).
The trouble is to decide whether to make the investment of that capital cost you need to rely on that other economics assumption: perfect information. The real world doesn't provide perfect information of future customer behaviour so you don't know at the start if you are making Flappy Bird or Floppy Bird. Once you have made it your aim is to maximise your income from it (given the zero marginal cost in the App store). That maximisation needs to occur at a time when the capital cost has already been spent so the capex doesn't actually affect the price you charge. Even if you are making a loss increasing the price doesn't help as less people will buy it (you were already at the profit maximisation point) and if you were making a profit cutting the price reduces the profit.
Note that even the information at the time to set the price isn't available so you are guessing again there without the economists perfect information assumption.
Free markets are good but especially in the real world they are not always optimal and market failure isn't unusual. I think app review (at least the keeping malware out, not necessarily the Apple payment lock in part) is a public good but one that would be hard to get people to voluntarily pay for separately and some of the benefit is communal (you benefit from me not having a malware infested phone). We might end up in agreement here.
> I would respectfully disagree. Market clearing is I think technically the price for the next unit of production, but even in a world of zero marginal cost (not quite true) then the capital cost still needs to be paid back (laptop, time spent coding flappy up and flappy down). So perhaps the clearing price is the expected number if sales divided by capex?
This is closer to reality (and further from economic theory but that is a different rant[0]).
The trouble is to decide whether to make the investment of that capital cost you need to rely on that other economics assumption: perfect information. The real world doesn't provide perfect information of future customer behaviour so you don't know at the start if you are making Flappy Bird or Floppy Bird. Once you have made it your aim is to maximise your income from it (given the zero marginal cost in the App store). That maximisation needs to occur at a time when the capital cost has already been spent so the capex doesn't actually affect the price you charge. Even if you are making a loss increasing the price doesn't help as less people will buy it (you were already at the profit maximisation point) and if you were making a profit cutting the price reduces the profit.
Note that even the information at the time to set the price isn't available so you are guessing again there without the economists perfect information assumption.
Free markets are good but especially in the real world they are not always optimal and market failure isn't unusual. I think app review (at least the keeping malware out, not necessarily the Apple payment lock in part) is a public good but one that would be hard to get people to voluntarily pay for separately and some of the benefit is communal (you benefit from me not having a malware infested phone). We might end up in agreement here.
Yeah, regulation is a balancing act.
[0] http://www.amazon.co.uk/Debunking-Economics-Revised-Expanded...