Tuesday, 13 May 2008

The Best Things in Life Are Free

I subscribe to podcasts from EconTalk and just a moment ago I received an e-mail reminding me of the latest podcast. I haven't listened to it yet. What I do is I download the audio file into a folder on my desktop. Then when I have listened to all the audio files on my portable audio player I delete everything on the disk and refill it with new audio files on my desktop.

Even though I haven't listened to this podcast yet, I know what it's about because I have read about it. It is called Chris Anderson on Free. Below is a summary from EconTalk:
Chris Anderson talks with EconTalk host Russ Roberts about his next book project based on the idea that many delightful things in the world are increasingly free--internet-based email with infinite storage, on-line encyclopedias and even podcasts, to name just a few. Why is this trend happening? Is it restricted to the internet? Is there really any such thing as a free lunch? Is free a penny cheaper than a penny or a lot cheaper than that? The conversation also covers whether economics has anything to say about free.

This idea of the proliferation of free things is very relevant to me since I like to use free things on the Internet. For example, Google provides many services such as word processor, e-mail, notepad, videos, and so on all free. I also listen to an endless supply of audio podcasts and they are all free. I ignore of course the cost of Internet connection.

This idea of free things is not just limited to the Internet but also the television. I am not talking about cable TV but free-to-air television, which contains many great shows that are all free.

What makes these things free yet profitable for the provider is the advertising. For the individual who can wade through all the free stuff without buying what is being advertised, then life is good. He is essentially free riding off the weakness (or lack of self control) of others.

I am a big free rider. For example, when I am at university and I feel the need to go to the toilet, I usually don't go to the university's toilets. This is because these toilets in the Department of Mathematics and Statistics are used heavily by students and the staff here don't have any incentive to make the place nice. Therefore, the toilets at the Math building smell bad. What I do instead is travel via tram to McDonald's and use the toilets there. At McDonald's the quality of the toilets directly affects how many customers come in or not. They have a profit motive, an incentive to make their toilets clean. On the way to the train station home I often stop off at these toilets to urinate but I don't actually buy anything from McDonald's. This allows me to free ride of the good quality of the toilets without actually paying for it. I can do this because statistically I have more strength than others to resist the temptation to buy McDonald's when I am in close proximity. Thus in an almost Darwinian way there is a transfer of wealth from the weak willed to the strong willed. I realize I sound arrogant here when I call myself strong willed, but I admit to others and myself that I am tempted my advertisers. I am tempted to buy things. I believe that acceptance of weakness is an important first step before the next essential step of self-restraint.

Another area where suppliers of good may take advantage of the weakness of others is in the market for credit cards. The credit card I use is the Coles Group Source Credit Card. This credit card is free. There is nothing to pay. There are no annual fees. If you pay your balance before 2 months, you don't pay any interest. I am sure Coles makes money by tempting credit card holders with promises of cheaper petrol if they buy from Coles stores. I try not to fall for this. I have their credit card but I have never ever purchased anything from Coles. Unfortunately, I got what I paid for. This credit card is very annoying. It is starting to charge me interest of about 50 cents even when I pay off everything every month. I also had a lot of trouble activating it and I still cannot get the Internet account working.

Good free things can also exist when the supplier does not have a money maximizing motive. For example, Wikipedia is free, yet nobody makes money on Wikipedia. Those who write on Wikipedia do so not for money but for some other mysterious reason. I write on this blog not for money either. Clearly I don't have any advertising on this website other than ads for charities. This means that for those who want free stuff not only can you exploit from the weakness of others in media in which there is advertising but you can also exploit the desire of others to simply give stuff away. Of course, the problem with stuff produced not for profit is that the incentive to produce a good quality product are not as strong. For example, while I write this blog, I don't really have much of a money incentive to write good things. It makes no difference to my bottom line. Nevertheless, I still try hard to write good things because I do want to give others good information. Whether this mysterious intrinsic motivation to do something because of love is as strong as the profit motive is something I don't know.

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