In software, it’s pretty straightforward: costs can go to zero, since the actual product has no physical cost. True, programmers cost, but the physical product is zero, or at least it can be.
But with real world products, zero isn’t possible. Make a transistor, and something is used up – so it costs more for 1,000 than it does for 10 (unlike software). But as we’ve seen in China, costs can go very, very low – my eBay purchases were a fraction of what similar things cost over here (which ironically were likely originating from China as well).
And while perhaps competition can drive a price low, even then there is a limit, a physical limit to how low an item can go without losing money.
Add to that the money you need to run the business and pay the wages, then it’s obvious that even software can never go completely to zero (at least, as a charging business).
But how low can prices go?
Ultimately, you can only sell an item long-term if you make a profit, no matter how many that may be (joke: I lost $2 on every item I sold; Q: how did you stay in business? A: volume). And as you trim the fat from the profit by sending jobs offshore, etc., etc., there comes a time when you reach a lower limit – continue at this profit level, and you can’t live.
What that limit is varies for every product of course – but the implication is that in the future, with enough competition, every business will work at ‘just enough’ levels – something we’re seeing today with fierce competition.
Of course, some companies know how to manage this, by factoring in patents, barriers to entry, and so forth, so not everyone will be charging only ‘just enough’ to get by. But for those with competition (and there are many today in this economy), I wonder how low prices can go…
