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I'm not an ecomonist, but have been tossing around some ideas in my head for a long time and thought I might ask here what resources or existing work might be out there.

There are a lot of market sectors where the cost of manufacturing one additional unit of a good is essentially zero. Almost all (or nearly all) of the cost is in development. It seems to me that the efficient market hypothesis must break down in this regime, since efficiency could always be increased by not redistributing goods but rather cloning them at no cost. I believe Pareto efficiency may not even apply in these markets. This is potentially a problem/opportunity for sectors such as software, music, news, website content in general, customer data, and more.

We see a variety of methods that have been adopted to help create more efficient markets. Subscription-based services, open-source software (the main currency there is not money), crowd-funding, snowdrift coop, and more. But I'm curious if there might exist a theoretical market economy that maintains some version of efficiency into this regime? Is there some modification to our current systems or some new form of currency that could be introduced that would self-regulate and optimize here? I'm not much concerned with practicality, just theory.

An alternative way of looking at this issue is that producing some types of goods necessarily benefits people who are not buyers or would not ordinarily be. From this perspective there might be other industries to consider such as public infrastructure, basic research, or military. Normally these are government-regulated, not market-regulated.

Anyway, that's the general scope of problems I've been thinking about. Is this even a real or recognized problem? Can it be measured? (I feel like the advertising industry may hold a key to measuring this, but I can't figure out how or even quite why.) How else is this effect characterized? What measures of efficiency have been proposed? Are there any solutions? I know I'm going to need additional education in this field, but I don't yet know which direction to head in. I feel like I might make some progress given some new definitions of efficiency and coding up simulations. (My background is in particle physics.) Existing terminology might help me search through literature.

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  • $\begingroup$ Yes, people are thinking about these ideas. Not necessarily economists, though economics is obviously a big part of your questions. Projecting the future through social change also requires strong assumptions about how people might behave in unfamiliar situations, which make them political (what else is nearer the heart of the difference between left and right?). I suggest you might like to take a look at Postcapitalism by Paul Mason to look at how some on the left see the implications of zero marginal cost production taking over. $\endgroup$ – Dan Apr 23 '18 at 21:07
  • $\begingroup$ Not the same problem but a very similar problem in economics is the socially optimal level of public goods. This has a wide literature, so that is something you can read up on. $\endgroup$ – Giskard Apr 23 '18 at 21:08
  • $\begingroup$ Thanks for these suggestions! I'm sorry the question itself is overly-broad for stackexchange but I don't know yet how to be more specific. I'm also interested in market simulations. I'll add that to the already-bloated question. :-D $\endgroup$ – user149485 Apr 24 '18 at 18:13
  • $\begingroup$ Curious (I don't claim to fully understand the framework): is this issue, at least partially, solved by the fact that these markets don't really allow sellers to price discriminate? I.e. if we assume that all goods are sold at the same price (which is reasonable for, e.g., an itunes song), then that price is set so as maximize revenue for the seller. Allocating to n+1 people then requires lowering the price enough to decrease the seller's revenue, which would necessarily mean that there's a net welfare loss between the n+1th person and the seller. Maybe I'm way off, though $\endgroup$ – MyStackRunnethOver Apr 25 '18 at 1:41
  • $\begingroup$ I'm suggesting here that industries with zero marginal cost present a new condition where free markets do not achieve a weak Pareto optimum. I cannot prove this, but one rationale is that with zero marginal cost you can consider not only a redistribution of goods to increase social welfare but also creation of additional goods. I suspect that price fixing does not address this since it does not allow buyers to express their preference accurately. $\endgroup$ – user149485 Apr 26 '18 at 16:05

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