Classroom Companion: Business

6.2 · Zero Marginal Cost

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increasing the fixed costs. Hence, the cost per unit produced will be zero indepen-
dently of the production volume. This is one of the reasons why companies pro-
ducing digital goods and service get so big.
6.3 
 Classification of Digital Goods
Goods can, in general, be classified either as private goods, public goods, club 
goods, or common-pool resources (Stiglitz, 
2015
). This classification depends on 
whether a certain good is rival/non-rival or excludable/non-excludable.
Definition 6.3
A good is classified as rival if it is reduced in quantity after consumption or if the 
usage of the good prevents others from using it. A non-rival good is the opposite of 
a rival good; it is neither reduced by consumption nor does the usage of the good 
prevent others from using it. An excludable good is such that it is possible to prevent 
consumers from accessing or using the good. A non-excludable good is such that 
consumers cannot be prevented from accessing or using the good.
From these characteristics, four different types of goods can be defined as shown 
in 
.
Table 
6.1
.
Digital goods are non-rival by nature—the consumption of a digital good by a 
user does not reduce the quantity available to other users of the same digital good. 
n
F
. Fig. 6.3 The average cost as a function of the number of units produced. (Authors’ own figure)
 
Chapter 6 · Digital Goods and Services

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For example, a user reading a webpage does not reduce the availability of that 
webpage for other users. A Spotify subscription gives a user access to Spotify, but 
this does not prevent other users from accessing Spotify. A user accessing the 
Internet does not reduce the availability of the Internet for other users. The latter 
is true with some limitations since webservers and the Internet have a maximum 
capacity. However, most computer and communication systems today are provi-
sioned to handle high demands. In this book, digital goods and services are 
assumed to be non-rival in most practical cases.
Digital goods can either be excludable or non-excludable. Excludability means 
that access to the good can be regulated. On the other hand, if a good is non- 
excludable, a user cannot be denied access to the good. Digital goods that are 
widespread on the Internet are non-excludable. Examples are free music, news, 
and content on free web pages. Digital goods that have restricted access are 
excludable. Examples include access to specific magazines and journals, copy-
righted music and movies, and licensed software. Excludable goods can be 
accessed by, for example, accepting a paid subscription plan or enjoying a club 
membership. The illegal copying of copyrighted material might result in exclud-
able content becoming non- excludable—copies become abundant and available 
for everyone.
>
Digital goods and services are non-rival by nature. Digital goods and services can 
be either excludable or non-excludable.
.
Figure 
6.4
 shows examples of digital goods classified according to the type of 
good defined in 
.
Table 
6.1
. Note that all the digital goods in the example are non- 
rival. Access to Wikipedia articles is non-excludable since the website is open and 
available for anyone. Gmail is an open and free service available for anyone who 
registers for an account. Spotify is both excludable and non-excludable at the same 
time. Its basic service is free for anyone registering for Spotify; however, Spotify’s 
premium service is accessible only by paid subscription. Internet access is exclud-
able since the users must pay for Internet access. However, Internet access may also 
be non-excludable; access to the Internet may be free and open to anyone in air-
ports and shopping malls and on trains and other public transport. Access to Net-
. Table 6.1 Different types of goods. (Authors’ own compilation)