Classroom Companion: Business

 
Chapter 6 · Digital Goods and Services

---

85
6
war resulting in zero revenue, companies may differentiate their goods from the 
competitors by making them unique for customers, for example, newspapers offer-
ing customized news alerts. The newspaper may then generate revenue from these 
customers. Another option is to apply creative business models that operate under 
condition that the service is provided for free while the revenues are obtained from 
other sources—Google and Facebook employ such business models.
Some digital goods become commodities because of standards. Standards 
force providers to deliver indistinguishable digital goods, for example, compatible 
Bluetooth access to mobile phones, hearing aids, and household gadgets. Digital 
goods also tend to become commodities over time. This may be the result of the 
harmonization of competing goods. An example is word editing software. In the 
1990s, editing products from different suppliers supported different functions. 
Today, word editing software packages are so similar that they have become digital 
commodities.
6.6 
 Transaction Costs
The transaction cost is the cost associated with the process of selling and buying. 
Transaction costs can be divided into three categories:
5
Search and information costs are the costs of searching for a particular good 
and determining its price and properties.
5
Bargaining costs are the collective costs for the consumer and the provider to 
agree on the terms of the contract. This includes the price and delivery condi-
tions of the good.
5
Policing and enforcement costs are the costs of sticking to the agreement and 
taking appropriate action if the agreement is not upheld by either party.
An example is trading of physical goods on eBay. The buyer first searches for prod-
ucts they want to buy among offers made by various sellers (search and informa-
tion costs). This is done on eBay’s website. When the buyer has decided which item 
to buy, buyer and seller will negotiate price and delivery conditions (bargaining 
costs). If something is wrong with the received product, the buyer will enforce con-
tractual rights by taking direct contact with the seller (policing and enforcement 
costs). eBay may also be involved in the dispute if the buyer and seller do not agree.
Amazon, eBay, and Alibaba lower the transaction costs by offering efficient 
search processes using web or mobile apps.