My understanding: Normally, selling a product has an increasing marginal cost per unit produced. Very often this increases more and more due to poor allocation of resources (diminishing returns). This sets up the firm's graph where MR=MC and gives them a quantity to produce and price to charge.

The question(s):

However, what happens when the product is software? Selling another product doesn't cost the firm anything, as all (most) of the costs are in development (with the exception of upkeep and bug fixes). How do they determine what price to charge? Would there be any reason to limit quantity?

Looking at video games specifically, Fortnite and Apex Legends have cost hundreds of thousands or millions of dollars to create then release free to play, with extra incentives to purchase if the player is invested in the game. Would this business strategy work anywhere else? Why or why not?

Thanks in advance, feel free to answer as few or many as possible, I just find this topic really interesting.

  • 1
    $\begingroup$ A similar question has been asked before. While no proper answer was given, you may still find the discussions in the comments section useful. $\endgroup$ – Herr K. Mar 10 '19 at 18:41
  • $\begingroup$ Books, music, movies, and many other creative products are now starting to fall into that group of zero incremental cost to distribute additional copies. Wonders of the digital age. $\endgroup$ – Ask About Monica Mar 14 '19 at 21:45

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