Intangible good

An intangible good is a good that does not have a physical nature, as opposed to a physical good (an object). Digital goods such as downloadable music, mobile apps or virtual goods used in virtual economies are all examples of intangible goods. In an increasingly digitized world, intangible goods play a more and more important role in the economy. Virtually anything that is in a digital form and deliverable on the Internet can be considered an intangible good. In ordinary sense, an intangible good should not be confused with a service, since a good is an object, whereas a service is an activity or labor. So a haircut is a service, not an intangible good.

Definition of intangible goods

An intangible good is just a good that is intangible, i.e. incapable of being touched. So what is a good?

(A) In pure economics, a good is any object or service that increases utility, directly or indirectly.[1] According to this definition A, intangible goods include services.

(B) In macroeconomics and accounting, a good is contrasted with a service. A good is defined as an object whose consumption increases the utility of the consumer, for which the quantity demanded exceeds the quantity supplied at zero price. Can an object be intangible then? In the most restricted sense, some people argue all objects are physical, and the resulting definition B leaves no place for intangible goods and classifies all of them as services.

(C) In a more ordinary sense, and a middle ground between definitions A and B, an object can be intangible, and we have the definition C of good.

According to definition A, (a) a printed book, (b) a piece of music downloaded from the Internet, and (c) a haircut are all considered a good even though (b) and (c) are intangible. According to definition B, only (a) is a good and both (b) and (c) are considered to be a service. By definition C, (a) is tangible good, (b) is intangible good and (c) is a service.

In a digital age with more and more transactions conducted on the Internet, definition C seems more reasonable.

Further distinction between goods and services

A different way to look at this distinction is to consider the ownership factor. In case if person A requests a design and person B fulfills the request and delivers the design through the Internet, was that a service or a digital good? It actually involves both. It's a service that produced an intangible good. If what person A bought from person B is a service, then person A should assume ownership of the design, which is a digital good; whereas if what person A bought is considered an intangible good, then person B may still own the design. It's like when you buy a book from a bookstore, you have the right to use that book but you don't own the copyright, whereas if you hire someone to write a book for you, then you will have the copyright.

Difficulties of intangible goods trading

Trading of most intangible goods has its unique barriers because a tangible-equivalent return policy is extremely difficult to implement, often impossible. Without a return policy, there comes the Satisfaction Guarantee Dilemma (SGD):

  1. Without satisfaction guarantee, buyers hesitate to buy;
  2. With satisfaction guarantee, sellers hesitate to sell, because buyers have strong incentives to claim dissatisfaction that can't be verified.

As opposed to buying tangible goods, buyers of intangible goods often are not allowed to see the whole goods before making purchase decisions, because in most cases seeing the whole good is the same as getting a full delivery.

Sellers of intangible goods that are digital (such as book downloads and other media) cannot recover products sold, and buyers fraudulently claiming non-receipt of products delivered are able to receive a refund for its alleged non-receipt while keeping the item in their possession.

See also

References

  1. ↑ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 3. ISBN 0-13-063085-3.

Further reading

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