Subject: Re: Economic incentives to produce software in a free software regime
From: "Karsten M. Self" <kmself@ix.netcom.com>
Date: Tue, 26 Oct 1999 13:54:28 -0700

Crispin Cowan wrote:
> 
> "Stephen J. Turnbull" wrote:
> 
> > >>>>> "Crispin" == Crispin Cowan <crispin@cse.ogi.edu> writes:
> >
> >     Crispin> Really?  "Nice car, eh?  Want tires with that?"
> >     Crispin> Unbundling of essential stuff was a standard tactic with
> >     Crispin> sleazy car dealerships before I was born.
> >
> > How do you make money by doing that?
> 
> I guess you don't, since it isn't done any more.  I think it was done due to
> pressure to keep list prices low.

Point of reference:  Pickup trucks are sold without bumpers in the US.

As one starts encountering less mainstream, products, or products in
which specialization and options are important and manifold, unbundled
pricing becomes more common -- and accepted.
 
> > Selling the service of preinstallation _is_ a good idea.  But that's
> > not bundling.
> >
> >     Crispin> Why not?  It works.  It's rather difficult to mass market
> >     Crispin> [blah blah preinstalled OS blah blah]
> > That's not bundling; that's offering the service of preinstallation.
> > Bundling means denying consumers the choice to to without.
> 
> Gotcha.  I was unfamiliar with that distinction.

The definition used by Varian and Shapiro is (paraphrased):

 - Bundling: selling a combination of products at a price lower than the
cost of the individual components.

 - Tying:  bundling, without the option to purchase the unbundled
components.

Bundling is legal.  Tying can be construed as monopolistic activity.
 
> > Well, as I see it, sharing copies does affect other people: it raises
> > the price to the licensed users.
> 
> It CANNOT raise the price to the licensed users, since they've already paid.
> It can only affect the price that future licensees will pay.  And as RMS
> points out, this discussion takes on vastly different meanings, depending on
> whether the sharables in question are proprietary or free software.

...and it's quite possible that widespread software piracy will *reduce*
the market price of the legitimate good, as piracy (shared copies or
counterfeiting media) is essentially a competing production function,
with only marginal, and not fixed, costs to recoup.  Emperical evidence
appears to bear this out -- pricing for legitimate software is greatly
discounted in high-piracy regions such as Hong Kong, Muratia, and
Eastern Europe.  As an ironic sidenote, the Register suggests that the
wide availability of pirated Microsoft software in Poland has dampened
the demand for Linux there (maybe we should support stronger anti-piracy
efforts in LDCs -- http://www.theregister.co.uk/991019-000017.html)  See
(http://www.deja.com/getdoc.xp?AN=368187521&fmt=text) where I write, in
part:

  The effect of pirated software is to reduce the demand for legitimate
  software.  The result of reduced demand is to move back along the
  legitimate software supply curve.  The result is nonintuitive: 
software
  piracy reduces the price of legitimate software.  Again, the amount
  varies with the particular S-D curves.  (We'll get to revenue impacts
  later).


-- 
Karsten M. Self (kmself@ix.netcom.com)
    What part of "Gestalt" don't you understand?

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