Categories of Goods
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TL;DR Traditional economic theory does not recognize anti-rival goods. Unlike traditional goods, network and symbiotic goods increase in value the more they get used. Many new business models gain their value from transitioning towards these models.
Introduction
Before jumping into handling money, shortly about different types of assets and how different business models move between them.
Goods in economy can be divided into six different categories.
Private goods. Access is limited and if I have it or use it, no one else can use it. For example, if I consume a kWh of energy or drink a cup of coffee, it is gone for good and no one else can benefit from it. Or products that I own like my car. Only people I allow can use it. These are called private goods or rival-excludable.
Common goods. Anyone can access the resources but once it is used, no one else can any more. Examples are for example fish in common fishing waters, water in groundwater basins. These renew at intrinsic rate, some can be permanently destroyed by total depletion.
Club-goods. Access is limited but when resource is freed, can also be used by other members. Golf clubs, theatre seats, hospital beds, books in library are typical examples.
Public goods. Anyone can access it without reducing its availability to others. For example, beaches, national defence, peace, law enforcement, electric grid, water works, knowledge etc. Some public goods are called quasi-public because the supply can dwindle. Road system can become choked with cars, beaches could become full and electric grid has a maximum transmit capacity.
Older economic theory recognises only the 4 first ones. Completely new theories are needed for the anti-rival type of goods.
Network goods. Access is limited but the resource becomes more valuable the more there are users. Example would be for example for-pay network game. The more people are online, the more exciting and interesting the game becomes. Some networks are physical (telephone network, Internet) and others virtual (online games, operating systems). The more people use a specific operating system, the more there will be apps and devices compatible with it
Symbiotic goods. These are goods where anyone can access and the more there are users the more valuable it becomes. Example would be open-source software (that can also be an operating system btw).
Asset classes can be divided based along two dimensions. Firstly, does the use of the good reduce its number (fishing reduces but using a library does not) and secondly whether it difficult to exclude potential beneficiaries. Excluding can happen via physical forms like locks, access to information or common customs. Using these two features we can map asset classes to them as follows:
Six types of goods.[1]
The classical asset classes have evolved to protect resource from damage and destruction via overuse or unauthorised use. Anti-rival goods (network and symbiotic) operate on a totally different principle. Use increases their value.
Value from Class Transitions
Sharing economy
Many current business models brought by companies utilising the Internet play with transitions between these categories. For example, renting my own apartment moves a private good into a category of club-good. This transformation creates value that both the platform company and apartment owner can share.
Most sharing economy services work through this transition: private -> club good. As another example, consider reselling your old books to new readers through a platform and they in turn can re-sell it again etc. The private book becomes a club-good until someone decides to keep it.
At the same time, sharing economy services are two-sided markets (no buyers without ample supply of sellers and no sellers without buyers). Getting one started is difficult but once someone establishes themselves, everyone tends to flock to it. They create a hard to overcome moat around the service. Sharing physical things economy is a winner-take all game.
Social media
Social media and Internet communities (forums etc.) create a transition from club goods to symbiotic good (symbiotic = anyone can access, and the more users, the more valuable it is). Rather than spending the evening at the local sports field, bar or whatnot, you can make light-weight acquaintances anywhere globally. Quite a lot of value is created when people can co-operate across the globe.
Social media companies ear through advertising, selling slices of your brain to commercial companies and political parties, basically to anyone with money.
At the same time, it destroys monetary value. Traditional entertainment venues lose customers and the ad-based model of Internet is poor in monetising the connections. A million views on a popular video service pays about 1000-5000 euros as compensation to the uploader. If you compare this to what the cost would be of a million theatre or hockey game match tickets, you see the enormous shift in pricing.
Gaming
Online gaming as mentioned is a transition from club good (i.e., playing football out) to a network good if you paid for the game. Free online games that monetise themselves with advertisements are symbiotic goods. Freemium model where playing is free but you can pay to improve the experience (better weapons in game or elimination of ads) is a borderline play between network and symbiotic goods.
Software
Software used to be private good but is nowadays symbiotic good. Productivity has exploded due to that. It is natural to assume that since all designs (physical products/objects, medicine, operating procedures, laws, decision making methods etc.) can be digitalised, that everything will be a symbiotic good in the end except lots of land and the physical buildings. Even the building design will be a symbiotic good.
Public services
Governments perform a multitude of activities most of which are club and public goods. As citizen you may use the health and education services but number of seats is restricted. This is a club good. Law enforcement and democracy itself (freedom of expression, right to assemble and form associations, voting rights etc.) is a public good.
When these become digitalised and the development is driven directly by citizen’s needs (Citizens' Automation Budget, Open Ministry, Governmental Kanban), we are moving into networked and symbiotic goods. When stuff in areas like health and education gets digitalized and freely available, it starts improving through closed-loop learning and network effects. The more people use these services, the better they get.
Governments of several countries can also co-operate in automating their inner workings (processes). Combined investments will speed up the transition to common public platforms that remove much of the undifferentiated heavy lifting where citizens and society waste their energy today.
These developments do not necessarily happen and the reasons are very human and easy to understand.
It can be argued that political and cultural elites that control the discussions and decision makings today all over the world are rather small compared to the whole population. At the same time people today are more educated than ever before, access to information has freed up as there are more channels, main stream media is no longer the only one and digitalisation offers options to crowdsource parts of decision power to its members with lots of options how to do this. This is a clear and present danger to the current elites.
The ideological battles in democratic societies can be seen in this light. As attempts to restrict who can participate into public discussions. To move democracies from mostly public good into a club-good and lock it into that position preserving status quo. An exclusive club where a thin upper class controls access. The aim of open sourcing and the so called web3 (crypto) communities is the opposite – towards symbiotic world. A ‘both-and’ world instead of current ‘either-or’.
Manufacturing
Local manufacturing tools (additive manufacturing, CNC, flow chemistry etc., more on those later) split the products into digital designs and actual physical production. Even the manufacturing tools can be made from digital “production templates”.
Physical products will also transform into symbiotic goods.
[1] Table and the first four types of goods analysis from: Beyond Markets and States: Polycentric Governance of Complex Economic Systems by Elinor Ostrom, American Economic Review 100 (June 2010): 641–672
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