When individual transactions are very small, non-monetary costs dominate
Chris Anderson of Long Tail fame recently posed a question in a post on the economics of abundance: what happens when it costs almost nothing to produce and stock one more item?
One surprising result is that non-monetary costs dominate the transaction. Most of you are familiar with monetary costs - pay $0.99 to download a song from iTunes (or $0.10 from AllofMp3). However, as the monetary costs fall, the most important impediments to a transaction are non-monetary: search costs and psychic costs.