From: gerald_a_levy (gerald_a_levy@msn.com)
Date: Fri Nov 08 2002 - 08:44:20 EST
Re [7594]: A few brief comments: 1) We had a brief discussion that was related to this topic in early September. See thread on "value of information" that was begun by Paul C and in which Gil, Michael P, Paul and I participated. 2) Graham's question concerned the value of commercial software. I'm not really sure why Graham is concerned with the *value* of this software. It seems to me that a more meaningful question would be to ask: what determines the *price* of commercial software? Indeed, unless one wanted to attempt to *calculate* the mark-up of price over value, I don't see how understanding the *value* of commercial software is significant. Except perhaps in the following way: if we assume that the commercial software takes the form of means of production and constant capital and if the price of the software is greater than its value, what is the *value transferred* in the labor process from those means of production? What then of the difference between cost and value? Does that increment form part of constant capital? #) As I suggested in the prior exchange, when examining the price of software -- commercial or not -- we have to examine the subject of *rent*. Replying to me, in [7614], Paul C wrote that: > Something analogous to rent is clearly involved. But it generally > does not take the form of rent directly - i.e., a payment per annum > for use of the software. Instead there is a one off cost of purchase > which exceeds the cost of producing that copy of the software. > What differentiates this from classic rent though, is that unlike land, > software is a product of labour. It is possible, and indeed is > conventional to cost a software development project in terms of > person years. > One must therefore differentiate between the value of the information - > in terms of the effort required to write the software, and the > price that each individual copy commands. I agree with Paul that this is not "classic rent". Nonetheless, as Paul recognizes, it is "something analogous" to rent. Call it "quasi-rent" instead. It seems to me that some of the literature on industrial pricing, especially from a Post-Keynesian perspective, discusses *how* price is determined within oligopolistic markets where firms enjoy -- as a consequence of product differentiation -- quasi-monopoly conditions. I think there is something analogous in the market for commercial software: i.e. because firms have differentiated their commodities they are able to essentially "set" the price for their product -- within limits of course. One method of industrial pricing that might be similar to pricing strategies by commercial software developers is the "price leadership" model described by Robert F. Lanzillotti and others in the late 1950's (see e.g. Kaplan, Dirlam, and Lanzillotti _Pricing in Big Business: a case approach_, Washington, The Brookings Institute, 1958). In this model, the leading oligopoly "sets" the price for their commodities (in this case, suppose it is Microsoft) and then the other oligopolies "follow the leader" by charging similar prices for their commodities. In so doing, price competition is (generally) avoided and instead firms compete over market share by using advertising and marketing as component parts of the strategy of product differentiation. Or one could make comparisons to the book publishing and pharmaceutical industries. Similar issues come up in those industries as well. In solidarity, Jerry
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