[OPE-L:7970] Re: Value of Software

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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