[OPE-L:7665] Re: value of information

From: gerald_a_levy (gerald_a_levy@msn.com)
Date: Sun Sep 15 2002 - 08:07:06 EDT

In [76l4] Paul C wrote:

> 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
> to cost a software development project in terms of person years.

Is the convention then to sell the software at a market price which
reflects its original development cost (cost of means of production + labor
cost in person years x some hourly wage rate)  + cost of copying
or is a mark-up over costs added onto the amount?

> 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.

Yet, isn't software development costs more akin in some ways to R&D
expenditures in the sense that it is unclear what the development cost will
be  ex ante and that the development team may not produce a commodity
which  is saleable.  Wouldn't this be the case even though there is a
software development budget and therefore an amount of money allocated
ex ante for software development?   Or is producing marketable software
typically less risky than R&D expenditure and more akin to the production
of other commodities?

Also when considering the RRI anticipated by software companies,
don't we also have to consider the anticipated "life" of the software?  In
this  sense, don't most types of software have a relatively short
anticipated useful  "life"?  If so, this would suggest that software
companies in their pricing decisions would attempt to recover their
costs within the anticipated "life" of the software.  I.e. moral
depreciation  has to be considered in the  pricing decisions.  Also, 
we know that large software developers, rather than simply  being 
presented with technological obsolescence through  the  actions of 
hardware  companies and rival software makers,  *design* (i.e. plan) 
technological obsolescence themselves.  That is, they write new 
"more advanced" software and then  try (through advertising, 
marketing, etc.) to get consumers to  "upgrade" to  the new 
software.  This is by no means a practice unique to software  
companies and is typically done in  oligopolistic
markets where competition emphasizes product differentiation.

Electronic book publishing perhaps is a different matter since e-books
might not become obsolescent in the same way that software is and therefore
might have a more useful "life" with the consequences that returns on
investment might be spread out over a larger number of years. The same
might be the case in terms of entertainment company  pricing, copying
costs, and RRI  on  music CDs.   In these cases, though, except for a
select number of writers and musicians, it would be very difficult to
estimate demand ex ante for the commodities.

In solidarity, Jerry

This archive was generated by hypermail 2.1.5 : Mon Sep 16 2002 - 00:00:01 EDT