Subject: Re: a model of competition between free and proprietary software
From: Russell Nelson <nelson@crynwr.com>
Date: Sun, 20 May 2001 23:50:36 -0400 (EDT)

Seth Gordon writes:
 > The number of developer-hours that F can attract is roughly
 > proportional to F's quality,

Only tangentially true.  The investment that a piece of software (F or
P) can attract is dependent upon its payback.  Nobody but nobody
invests money unless they anticipate getting more value back than the
current value of the money.  Why?  Because people prefer consumption
today over consumption tomorrow.  An investment is deferred
consumption therefore in every case someone making an investment wants
to get more than their investment back.  (Note to Ian: Economics IS a
rigorous discipline, provided you stick to the parts that are subject
to rigorous analysis).

An entrepreneur (or a person playing the role of entrepreneur) has
anticipated the onset of a problem which his software will solve.  The
capitalist (or a person playing the role of capitalist) defers
consumption by loaning capital to the entrepreneur.  The entrepreneur
spends the capital on a worker (or a person playing the role of
worker), who will only work if paid concurrently with the work.

In the case of P, the investment is spent paying developers even when
there is no income, maybe even for years.  This investment is
justified by the entrepreneur to the capitalist because the software
is proprietary.  In the case of F, the developer is often acting as
entrepreneur, capitalist, and worker, all rolled into one.  The
developer has a problem worth solving, defers consumption, and works
on the software.

In each of these separate decisions, they are made using the same
criteria regardless of whether the software is free or proprietary.
They only appear to be different because the F developer plays all
three roles at the same time.

 > Unfortunately, my primary economics education comes from reading Paul
 > Krugman's columns, so I'm not sure how to develop my theory into
 > something that would convince the pros -- and I'm afraid that if I
 > tried, I would waste a lot of time reinventing wheels.  If one of the
 > business or economics gurus on this list could give me a list of
 > background reading,

Start with _Economics in One Lesson_, by Henry Hazlitt, and then dive
headfirst into _Human Action_, by Ludwig Von Mises.  The latter is an
expensive, thick, dense, and often impenetrable book, but if you can
make your way through it, no economic issue will be beyond your grasp.
It's also online at http://www.mises.org/humanaction.asp .

-- 
-russ nelson <sig@russnelson.com>  http://russnelson.com
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