The Nature of Digital Goods - Idate

34 No. 71, 3 rd Q. 2008
merchandising, which are not subject to the same issues 7 . Although such
strategy cannot be universally applied to all digital goods, it shows that by
understanding the nature of these goods and using it as a strength, instead
of fighting against it, there may be some new and profitable ways to do
business.
Conclusion
Digital economy is at the same time promising (for companies, but also,
in terms of growth, for governments and policy markers) and extremely
challenging, since it forces to rethink the way goods are produced,
distributed and sold. To fully apprehend (I think this should be
"comprehend") the potential of digital economy and anticipate the coming
challenges, it is of the utmost importance to consider, and understand, the
particular economic nature of digital goods.
As a matter of fact, digital goods are unlike any other good in the
economy, in the sense that not only do they combine several particular
characteristics, but also that these characteristics are, in their own way,
extreme. Digital goods, like non-digital information goods, contain
information, but also are themselves information. At the same time, digital
goods are public, but unlike other public goods, their publicness varies and
is a direct consequence of their non-rivalness. Furthermore, digital goods
are infinitely durable, which is, in itself, rare, and are, due to this durability,
experience goods.
For both entrepreneurs and policy makers, the challenge is that only one
of these characteristics would be sufficient to drive the price of digital goods
to an unsustainable level and create a market failure. Yet, with digital goods,
three sources of market failure are combined. Although it is true that some
firms are able to gain large amounts of profit within the digital economy, it is
crucial to understand that the characteristics of digital goods presented in
this article are only likely to become even stronger due to technological
progress. Thus, the challenges created by digital goods will only become
greater.
7 Income can also be derived from free downloads. When Radiohead offered their latest album
online, letting downloaders free to choose how much to pay, the average price paid was $6,
much more than the typical amount of royalties gained per album sale.