In a Free Market Economy, How Can the Price Always Be $0?

A basic principle of economic theory is that supply and demand are at the root of every transaction. Despite the complexities and exceptions, we generally accept the relationship between supply and demand. Demand is based on the observation that the lower the price of a product, the more people will want to buy that product. Supply is based on the observation that the higher the price of a product, the more of it producers will supply. At a particular price, the economy should achieve a natural equilibrium.

The simplicity of supply and demand basics is exquisite. But, before we can understand the operation of such a simple concept, we have to understand the meaning of product and of price. Our world is complex. Each situation is unique, so lets start with a social media platform, such as Facebook.

One possibility is that Facebook is the producer. Facebook’s product is the software that is the social media platform. The consumers are the users of the platform. Then, the price of the product is $0. If Facebook were to raise the price to $10 for the platform, the basics of supply and demand would suggest that people would not demand as much of the product. Similarly, if the price of the product decreased from $0 to -$20, the users would be paid $20 for using Facebook. Then, the demand for the product should increase.

Another possibility is that the users are the suppliers. The suppliers’ product is the data that they provide. Facebook is the consumer of the users’ data. And, the price of the data is still $0. In this example, each user is its own business and each has set its price at $0. Or, the consumer, Facebook, sets the price for every supplier at $0. Is it possible for the users of Facebook, who are the suppliers of the data, to move the price up to $20 so that Facebook would have to pay $20 for the data? It doesn’t appear that the principles of supply and demand are working to set an equilibrium price for the data being sold.

Our simple concept of supply and demand raises basic questions of who is the producer, who is the consumer and what is the product. And, how do supply and demand always create an equilibrium price of $0? The price of every platform from social media to video sharing is $0. This price is set at $0 regardless of the data being supplied and demanded or the platform in question.

Social media platforms present a unique opportunity to analyze supply and demand in the context of an economy where the people on the supply side and on the demand side are the same people. For example, if a social media platform were owned by the users who provide their data, where would the users who also own the platform set the price? Or, it is possible that a platform owned by the users could simplify the operation of supply and demand in social media and other internet based services? The users have the opportunity to sell the data themselves as the suppliers and earn revenue, while the demand is set by the consumer of that data – advertisers.

More generally, the uniform price of $0 suggests that there may be other factors at work other than the principles of supply and demand. Whether social media or any other product, what if people demand a better price? Can collective bargaining or collective action improve the economic position of the majority of people in a society? In addition to a social media platform that puts users on both sides of the supply and demand equation, everyday Americans can explore ways to work together to negotiate a better price and improve their position in the economy.

 

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