On the Irrelevance of Prices in the Digital Age
On the Irrelevance of Prices in the Digital Age

Author(s): Julia M. Puaschunder
Subject(s): Business Economy / Management, Financial Markets
Published by: Scientia Moralitas Research Institute
Keywords: Decentralized Economy; Digitalization; Exchange; Innovation; New Markets; Online Social Media Platforms; Price; Value;
Summary/Abstract: This article makes the case that monetary prices have become less relevant in the digital age, while time, data and networks are the new market forming moment. Prices have decreased in importance to understand market dynamics between supply and demand in the digital age for several reasons: First, marginal costs of digital goods are often close to zero in online markets – meaning that an additional participant using digital goods only increases network benefits but does not entail substantial production cost increases. For instance, freemiums and subscription models offer basic online services for free for the masses and reap some benefits from premium subscriptions of some users who gain extra services or access. Data has become the new currency of information exchange, which results in online goods and services offered for free in lieu of access to information of user data. Network access has become the new demanded good, which is supplied by online social media platforms. On the supply side, individuals are invited to join to form a network for free in order to build a vital engagement community. Internet online service providers are also able to benefit from targeted or classified online advertisement space. The more people join their networks, the better the ecosystem growth is and user engagement, which all boost online advertisement space pricing, generating more revenue for the platform provider, who is not constraint with much more marginal costs incurred from one more user using the platform. If the platform providers sell premium accounts with extra features, the online digital space can be used efficiently with dynamic and personalized pricing to adjust prices in real time and based on the anticipated consumer budget and purchase behavior patterns derived from big data analysis. Digital markets also offer more of an abundance in complexity and opportunity than physical markets as the technical capacities are more constraint by storage and energy rather than physical space and distance. Pricing is therefore more dependent on access to online communities and interesting engagement opportunities than physical transfers of goods or provision of traditional services. Online markets are also more likely to offer decentralized solutions and open-source models, in which people contribute themselves with their time to provide content and software development, which has become a more creative source of value rather than transfer of payments. The discussion reflects on the role of determining new value creation and consumer choices in the digital economy.

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