[migueloller]

Well, I guess you could say that if the store was run by robots so you didn't have to pay employees and if the shirts were made out of thin air so that there are no COGS. I'm not trying to be facetious. I think the distinction between marginal and fixed costs is important here because it's all about the feedback loop for aggregators. And one can think of marginal costs as "friction" in this loop.

That being said, perhaps aggregation theory won't be complete until Ben considers fixed costs in addition to marginal costs, which I believe might be your argument?

[TheOtherHobbes]

Aggregation theory is nonsense. Not all costs are technological, and similarly not all customer costs are direct. While aggregators exist, you can't understand the market-distorting effects of monopoly without appreciating the entire picture of capital flows within the system from surrounding businesses to the monopolist.

The second order effects are at the heart of antitrust action. Monopolists distort markets in ways that force everyone to pay extra even if they do not pay the monopolist directly.

For a trivial example, consider that dealing with SEO is a huge and expensive problem for any startup. If you don't appear in listings - preferably by buying ad spend - you may as well not exist.

Someone has to pay for that, and those costs will be passed on to customers in most Internet transactions. How much they pay is strongly influenced by Google's choices.

If search wasn't a monopoly those costs would be lower because there would be competition.

This is far from the only example of a market-distorting effect that generates extra costs for businesses and customers because of an online monopoly.

[6gvONxR4sf7o]

My point is that he’s calling certain costs fixed that I would call marginal. For COGS or data centers you have to choose something to amortize over. For a traditional good, it’s the lifecycle of the physical product. For a data center, you could amortize it relative to its capacity, maybe? Or cost per ad dollar sold, rather than per query? It really depends on the question you’re asking, as fixed or marginal is really fixed or marginal with respect to some factor. It’s unclear what the correct way to do it is, but it’s clear to me that calling it fixed is wrong, relative to the specific points he’s making.

I’d look at how AWS looks at its data center costs and apply that model. Google Search may not be renting infra to searchers, but that’s not the important distinction.