Paul Krugman on Google Reader

Paul Krugman has an interesting argument about Google’s decision to retire Google Reader:

I’ve been trying to think this through in terms of more or less standard microeconomics, and here’s what I’ve come up with:

First, it’s a well-understood though not often mentioned point that even in a plain-vanilla market, a monopolist with high fixed costs and limited ability to price-discriminate may not be able to make a profit supplying a good even when the potential consumer gains from that good exceed the costs of production. Basically, if the monopolist tries to charge a price corresponding to the value intense users place on the good, it won’t attract enough low-intensity users to cover its fixed costs; if it charges a low price to bring in the low-intensity user, it fails to capture enough of the surplus of high-intensity users, and again can’t cover its fixed costs.

The post is titled “The Economics of Evil Google.”

A commenter named “jev” makes a very good point:

There is even a simpler solution: Monopolists will eliminate a product or service, even a profitable one, if it can be replaced with a more profitable one.

A corollary: This is especially true with software, where it has been the habit of large software companies to purchase smaller companies, merely to “retire” the purchased companies products, but keep the software engineering talent.

How was the previously heaver user of Google Reader to trust the company won’t retire future products at the slightest whim? Good luck with that is right.

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