http://krugman.blogs.nytimes.com/2013/03/23/the-economics-of-evil-google/
Paul Krugman makes an interesting case about the dilemma Google faces.
He argues that the use of search engine illustrates a unique model where they have high-intensity users and low-intensity users with differing willingness to pay.
Normally, the willingness to pay would be distributed so that the firm can just choose to maximize profit by setting price equal to marginal cost, but in this case, the firm only faces high fixed cost and almost zero marginal cost.
Due to the nature of the internet search engine, Google cannot price discriminate, and therefore, it must determine how best to extract the most profit in order to keep up with the high fixed cost.
Krugman concludes that this model more readily resembles models for utilities and envisions the public ownership of internet search engines.
1 comment:
Google's unique position seems truly groundbreaking and indicative of the digital age in which we currently live. I wonder how much this sort of business model will spur new economic thought dealing with more unprecedented scenarios. Does this put Google at a long-term advantage or long-term disadvantage? Given Krugman's position, I might predict the latter.
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