There is much about computing to make the blood boil – the badly timed crashes and the endless software updates are frustrating. Yet most annoying of all is the fact that some products seem needlessly bad. Anyone setting up a home office, for example, will find that Microsoft has made the cheap version of its software worse by stripping away its email tool, Outlook. New versions of free-to-download apps can be slower and clunkier as they bombard the user with ever more adverts. These frustrations are all by design: microeconomics explains why, in the digital economy, firms work hard to make their products worse.

For many companies price and quality move in sync. Take guitars. A top of the range Martin or Gibson starts at around $3,000 and will be made from solid wood, in America. Cut the cost of the inputs (use plywood instead of spruce) or the labour (make it in Mexico) and you lower quality but can sell at a lower price (from $500). This natural relationship means there are a range of qualities and prices and allows the firm to serve various different customer types.

Read more