The marginal costs of producing and distributing
intangible goods, such as intellectual property, are negligible.
Returns increase - rather than decrease - with each additional copy. An
original software retains its quality even if copied numerous times.
The very distinction between "original" and "copy" becomes obsolete and
meaningless. Knowledge products are "non-rival goods" (i.e., can be
used by everyone simultaneously).
Such ease of replication gives rise to network effects and awards first
movers with a monopolistic or oligopolistic position. Oligopolies are
better placed to invest excess profits in expensive research and
development in order to achieve product differentiation. Indeed, such
firms justify charging money for their "new economy" products with the
huge sunken costs they incur - the initial expenditures and investments
in research and development, machine tools, plant, and branding.
To sum, though financial and human resources as well as content may
have remained scarce - the quantity of intellectual property goods is
potentially infinite because they are essentially cost-free to
reproduce. Plummeting production costs also translate to enhanced
productivity and wealth formation.
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