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Friday, March 18, 2005

Kevin Laws at Ventureblog writes:

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.

Click here for the whole article.

I think he's on to something. Because of the increasing use of the internet, non-monetary costs have become more an more important. We now have an array of choices that would have been unimaginable even ten or fifteen years ago. So, search costs become more and more important. The internet also increases the "psychic costs" of wnedering if we've made the right choice, because there's always the temptation to do a little more research.

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