As an economics geek, I'm fascinated by the open source movement and I now consider myself part of it. From an economic perspective, one could say that it's an entire movement that is dedicated toward fighting government failure (opposite of market failure) in a single sector of the economy. It's government failure because economic output would be greater without many of the government interventions in the sector. These interventions include software patents, overly strict copyright laws, looking the other way on monopolistic behavior, etc. It's basically the effect of powerful lobbyists, rent seekers and a handful of unfortunate court rulings. The first two are part of something economists refer to as crony capitalism. Government failure is often far worse in other parts of the economy that have been around longer. If only there were as many of people in other sectors of the economy with as much passion taking on government failure and it's effects.
I have a hypothesis as to why open source is successful. First, you have to take the personal utility that people get through developing open source software as opposed to proprietary and figure it into the deriving functions of both the supply and demand functions (don't worry, i won't do any fancy math) instead of just one of them. You have to factor in economies of scale a lot more with open source software. Also, open source software is probably the closest thing to a true contestable market out there. In a perfectly contestable market, participants act like they are in a perfectly competitive market and no one makes abnormal profits because there are barriers to entry or exit, leading to a potential for short term market entry to make all of the profits. Of course, there are flaws to the assumption that open source is a contestable market, but anyone following it has watched countless forks happen, a great example. This means that in open source, the biggest winner is the consumer and new and/or relatively week market participants. This improves overall competition, both within open source and outside by forcing firms to offer lower prices than they otherwise would, raise quality, differentiate and/or invest more in improvements. I'm sure there's other things that I'm forgetting to mention.
Anyone have any ideas or comments?
I have a hypothesis as to why open source is successful. First, you have to take the personal utility that people get through developing open source software as opposed to proprietary and figure it into the deriving functions of both the supply and demand functions (don't worry, i won't do any fancy math) instead of just one of them. You have to factor in economies of scale a lot more with open source software. Also, open source software is probably the closest thing to a true contestable market out there. In a perfectly contestable market, participants act like they are in a perfectly competitive market and no one makes abnormal profits because there are barriers to entry or exit, leading to a potential for short term market entry to make all of the profits. Of course, there are flaws to the assumption that open source is a contestable market, but anyone following it has watched countless forks happen, a great example. This means that in open source, the biggest winner is the consumer and new and/or relatively week market participants. This improves overall competition, both within open source and outside by forcing firms to offer lower prices than they otherwise would, raise quality, differentiate and/or invest more in improvements. I'm sure there's other things that I'm forgetting to mention.
Anyone have any ideas or comments?
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