Understanding the Challenges of the Digital Economy: The Nature of Digital Goods

Abstract

This article investigates the economic nature and characteristics of digital goods. Such goods are, due to their replicability, shown to be public goods (albeit in an evolutionary way) and durable goods. Furthermore, the content of such goods, combined with their durability, makes them experience goods. While only one of these characteristics would be sufficient to create difficulties for producers and lead to market failure, this article demonstrates that each of the characteristics reinforces the other. The framework presented in the article is then applied to two important issues: The new trend of massive consumer piracy and the overall problem of value of digital goods.

Keywords: digital goods, public goods, durable goods, experience goods, piracy