MrNyarlathotep
Banned
Can you please explain this further? I do not understand your perspective here. A supplier being unable to supply at an equilibrium price would leave the market. How does artificially increasing the price make no one worse off (supposing the affected party is not compensated)?
I have not seen pareto efficiency used in this manner.
Classical supply and demand models cannot be applied to digital goods, because digital goods are neither homogenous nor supply limited; effectively every single title available though DD is grotesquely over supplied in market saturation. The limiting factor for consumer adoption is time, not supplier availability (as noone can play everything).
What you currently see in the DD mobile market is closer to a nash competition game equilibrium, where the "winning" strategy (one that cannot be undercut by a rival) is to charge nothing; but this is a "strategic" result, not a naturally occurring free market result.
Given we know that there is a minimum marginal cost (iOS developer fees) for every product, and we also know titles are being 'sold' at below marginal cost, equilibrium cannot be maintained, because suppliers cannot run at a loss forever (and it doesn't make the headlines like a Neversoft closing does, but iOS developers are shut down weekly).
True pareto efficiency is a zero sum game, where you cannot make any gains that are not at the expense of a competitor; we can therefore see that there is not current competitive equilibrium, as pareto improvements are demonstrably still possible - any given successful supplier could choose to raise the price of their product and not negatively affect a competitor by doing so (in fact it would arguably benefit all suppliers to collude and do so).
In a competitive equilibrium (a sustainable market) with infinite supply of non-homogenous products by multiple independent (non-colluding) suppliers, price is naturally defined by marginal cost + fixed cost + profit margin, not by demand.
Pareto efficiency would be reached in that each consumer of title A would then not choose to consume title B, or vice versa (time being the only constraint on demand).
Where there is homogeneity of titles (2 extremely similar same genre titles) price would only be a determinate where one company has achieved greater cost efficiency but without any qualitative change to the product (for example a "Saints Row" is perceived to be similar to a "GTA" but of a lesser quality; a "Saints Row" and a "GTA" can compete where a consumer has time for both, or where the lesser quality product is cheaper. If consumers only have time for one title, and they are both equally priced, "Saints Row" is pushed out of the market.)