There is an argument to be made that the market buys bug-filled, inefficient software about as well as it buys pristine software. And one of them is the cheapest software you could make. It's similar to the "Market for Lemons" story. In short, the market sells as if all goods were high-quality but underhandedly reduces the quality to reduce marginal costs. The buyer cannot differentiate between high and low-quality g…
The dumbest and most obvious of realizations finally dawned on me after trying to build a software startup that was based on quality differentiation. We were sure that a better product would win people over and lead to viral success. It didn’t. Things grew, but so slowly that we ran out of money after a few years before reaching break even. What I realized is that lower costs, and therefore lower quality, are a compe…
You must have read that the Market for Lemons is a type of market failure or collapse. Market failure (in macroeconomics) does not yet mean collapse. It describes a failure to allocate resources in the market such that the overall welfare of the market participants decreases. With this decrease may come a reduction in trade volume. When the trade volume decreases significantly, we call it a market collapse. Usually, some segment of the market that existed ceases to exist (example in a moment).
There is a demand for inferior goods and services, and a demand for superior goods. The demand for superior goods generally increases as the buyer becomes wealthier, and the demand for inferior goods generally increases as the buyer becomes less wealthy.
In this case, wealthier buyers cannot buy the superior relevant software previously available, even if they create demand for it. Therefore, we would say a market fault has developed as the market could not organize resources to meet this demand. Then, the volume of high-quality software sales drops dramatically. That market segment collapses, so you are describing a market collapse.
> There’s probably another name for this
You might be thinking about "regression to normal profits" or a "race to the bottom." The Market for Lemons is an adjacent scenario to both, where a collapse develops due to asymmetric information in the seller's favor. One note about macroecon — there's never just one market force or phenomenon affecting any real situation. It's always a mix of some established and obscure theories.