[picoIPO] Re: Micropayments, redux

[R. A. Hettinga]

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Status: RO
To: clay at shirky.com, johnl at iecc.com, picoipo at lists.picoipo.com,
   tboyle at rosehill.net
Cc: iang at systemics.com
From: odlyzko at dtc.umn.edu (Andrew Odlyzko)
Subject: [picoIPO] Re: Micropayments, redux
Sender: picoipo-admin at lists.picoipo.com
Date: Wed, 18 Dec 2002 07:01:42 -0600 (CST)

Dear Colleagues,

Just a few general comments on the flurry of messages from
yesterday.  I certainly do see micropayments playing some
role in the economy in the future.  I agree that we do have
the technology to implement them easily.  However, I still
think that they will play only a marginal role, as predicted
explicitly in the paper "Fixed fee versus unit pricing for
information goods: competition, equilibria, and price wars,"
(with Fishburn and Siders, the result of work during the
same summer of 1996 when Jarecki and I invented our probabilistic
polling micropayment scheme).  This paper appeared first in
First Monday,

  <http://firstmonday.org/issues/issue2_7/odlyzko/index.html>.

The basic reason for this prediction is that even in the absence
of the many behavioral economics factors, producers benefit
from bundling (as in selling an entire newspaper instead of
individual articles) by taking advantage of uneven preferences
among consumers for the individual items.  That is why Microsoft
(not known for its charitable impulses, after all) sells its
Office bundle for less than half the sum total of prices of
individual components.

In addition to the basic power of bundling, we also have the
behavioral economics factors, already discussed slightly in
the paper with Fishburn and Siders, and treated more fully
in "Internet pricing and the history of communications,"

 <http://www.dtc.umn.edu/~odlyzko/doc/history.communications1b.pdf>

and even more fully in "The history of communications and its
implications for the Internet,"

 <http://www.dtc.umn.edu/~odlyzko/doc/history.communications0.pdf>

which (i) cause people to be willing to pay more for simple,
preferably flat-rate, pricing, and (ii) make people drastically
cut down their usage when faced with metered pricing.

Not everything can be shoehorned into the flat-rate subscription
model, so I do expect that micropayments will eventually play
a role in the economy, but I don't expect that role to be large.

Best regards,
Andrew



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-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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