Showing posts with label free goods. Show all posts
Showing posts with label free goods. Show all posts

Monday, August 22, 2011

File sharing and the structure of the music market

For as long as music has existed, artists have lived from performing. The advent of packaged music (radio, TV, disk, tape or CD) has changed little to this, as the new medium has been more about promoting the artist than making money for the artist, with few exceptions. The ones making money from sales are the record companies, and the appearance on file-sharing is challenging their business model while not affecting the artist's way of living. In fact, the latter appreciate the zero marginal cost promotion. But the record companies want to survive.

Ralf Dewenter, Justus Haucap and Tobias Wenzel study the interaction of record and ticket sales under the assumption that both benefit from each other. Clearly, the impact of file sharing is ambiguous: it may increase record sales if people discover an artist through file-sharing and attend a show. But some potential sales are lost when a very close substitute is available for free. The solution for the record companies to to take over the management of concerts as well. Whether the artists want to go along with that is another question.

Monday, January 4, 2010

Charities: competition vs. the social planner

Charities need to raise funds, and it is costly doing so. As the number of charities increases, so do these costs. This raises the question whether there is an optimal number of charities and whether some sort of regulation can bring us closer to this optimal number.

Murat Mungan and Yoruk Barls should that free competition leads to a suboptimal number of charities, in particular because some donors are solicited by several charities. In this respect, is a regulated monopoly the solution? One would think this is not optimal because charities pursue very diverse goals. Mugan and Barls show that in a spatial model this charity "ideologies," some extent of competition is good for maximizing net charity revenues as long as the fixed costs is sufficiently low. That seems like a trivially simple result, but it one worth pointing out. The way charities are regulated is by restricting entry and then taxing or subsidizing them to get the "right" fix cost.

Wednesday, March 4, 2009

Free textbooks

I have reported before about what a rip-off textbooks are. The obvious solution is to teach without one, but today's students insist on them. But help seems to appear on the horizon, in the from of Flat World Knowledge, a commercial publisher that sells hard copies, at lower prices than the competition, and offer the PDF files for free. This is quite an interesting commercial strategy, which has also been adopted by some open access journals that provide print-on-demand services at some cost but otherwise keep the journal free. In economics, Theoretical Economics comes to mind.

Hattip: Against Monopoly

Wednesday, January 21, 2009

Google Knol is not Wikipedia

Google has recently announced that its Knol initiative has reached 100,000 entries in only six months. Knol is supposed to be Google's answer to Wikipedia, doing it better. How? By having entries managed by named people, instead of anonymously. And these editors can earn some share of advertising revenue. That sounds like a good concept, especially in the face of criticisms of Wikipedia, where anonmity and openness can lead to abuse.

The result? Knol is a huge disappointment. Witness the economics entries, which have been highjacked by lunatics. Despite appearances, incentives are wrong: There is no reward for correcting entries, or even maintaining them. All that matters is being the fisrt to start an entry. This leads to unnecessary duplication of entries, see for example those on Barack Obama (243) of which none comes even close to the quality of the Wikipedia entry.

Why is Wikipedia so much better even if contributions are anonymous? I think it encompasses all the benefits of the open source movement. People participate because they see an opportunity to contribute to the community. They want to share their passion without glorifying themselves. And they know that nobody is making money on their back. Imagine if Wikipedia started making portions of the site accessible only to subscribers. Contributors would leave en masse. Also, Wikipedia seems to have much better checks and balances in place, effectively subjecting entries to continuous peer review. Knol puts this in the hands of editors, who seem more interested in pusjing agendas than anything else.

Friday, March 21, 2008

Another good free good: RePEc

To conclude this week's tour of free goods and how they can be good even though they are free, let us look at our own profession. RePEc is a free bibliographic database that is free for all participants: authors, publishers, readers. Interestingly, it does not even rely on a grant, as its budget indicates.

Somehow, RePEc manages to find the resources from various sponsors providing hardware, hosting and bandwidth, as well as numerous volunteers. Incentives seem to be aligned for everyone to want to provide help for RePEc. Obviously, publishers want to make sure their material is listed, thus they provide records for free. Various volunteers seem to participate either out of pride of doing something good for the community, or to satisfy some (public) service requirement their job may have. And end-users are just happy to find a free service that is better than the pay services out there (Econlit and SSRN come to mind).

For non-economists, there is always Google Scholar, but for Economists, RePEc is unrivaled.

Thursday, March 20, 2008

Free Newspapers

The marginal cost of printing a newspaper is minimal, yet the fix cost is huge. The marginal revenue of a newspaper is positive, both from sales and from ads. Thus, a newspaper needs a diffusion as large as possible. Now how could you maximize diffusion? One way is to give the newspaper for free. You lose the sales revenue, but you gain ad revenue, and retailing costs are minimized.

This is exactly what Metro does, and with tremendous success, being now the most disseminated newspaper in the world. The idea was born in 1995 in Stockholm: print a newspaper, distribute for free in public transportation stations, attract ads, etc. Now readership is at 23 million a day. There are even competing free newspapers in some cities.

The same principle applies to newspapers on the Internet, where the marginal cost is even smaller, as well as the fix cost. Now, I wonder why some newspapers still insist on charging a price for their product. For sure, a positive price allows some discrimination of readers. The New York Times would be very different if it were free. But it is the New York Posts of this world that should be free, even in paper form.

Wednesday, March 19, 2008

Free, and yet better than costly goods: open source software

Open source software does not follow basic economic principles: people contribute sometimes considerable time and effort to the development of a product and then agree to provide it for free to anyone who wants it. In some cases, employers even encourage their workers to participate in such endeavors. Why?

Participation dynamics in open source are extremely complex. David and Rullani study the participation of over 200,000 individuals (!) on SourceForge and argue that once critical mass is obtained, people want to help for the common good. Spiegel argues that participation allows to signal about one's qualities, and thus be hired on other projects. Bitzer, Schrettl and Schröder argue that there can be intrinsic motives for participation beyond signaling. Another aspect that drives participation is the knowledge that your contribution will remain in the public domain.

The amazing thing in open source is that the delivered product is often superior to commercial ones. The prime example in Linux, which easily surpasses market dominator Windows in security, efficiency, functionality, and, of course, price. Windows users: with Linux, you do not need anti-virus software clogging your memory, no need to defragment your hard drive, no need to reboot for minute updates, no worries about the computer crashing, and no need to buy any software. Speaking of software, products like LaTeX (already discussed here), emacs, apache, and MySQL dominate corresponding commercial products. Beyond the software industry, open source collaborations on sites like Gutenberg, Wikipedia, or Youtube that show that there is a place for the public good.

Tuesday, March 18, 2008

Free Rice and Free Education

Second in the series this week about free goods: how to enrich your vocabulary and provide food relief, both for free. FreeRice provides a vocabulary test, and for each answered questions provides some grains of rice to needy people.

How can this be pulled off? After all the website operators need to maintain a server, databank and buy bandwidth and rice. It is all financed by discreet ads at the bottom. So discreet in fact that I did not notice them until I saw them mentioned in the site's FAQ. Cost are relatively low, however: 1000 grains of rice cost in the order of one cent (wholesale), and the marginal cost of server traffic is close to zero.

This site has become a favorite in many schools, and these few grains a word certainly add up. As of today, the total is closing in on 25 billion grains, and their cost still add up to a quarter million dollars.

Monday, March 17, 2008


This week, I will be featuring a few examples of goods that are free, yet of value and willingly offered by those who provide them. Basic economic principles seem to imply that something that is free cannot be better that something with a positive price. It turns out that there are exceptions to this rule.

Radio is a good you can consume for free over the airwaves. It is financed by advertisements or by taxes. I some countries, one needs to pay a fee to listen to radio, but the fee does not depend on usage. One can however argue that ads are annoying and thus there is still a non-monetary cost to listening to commercial radio. And you have a rather limited choice regarding programming. This is partly what XM-Radio and Sirius exploit by offering numerous specialized ad-free radio stations for a subscription fee.

Then, there is internet radio, of which Pandora is the flagship. Is this particular case, the radio station is individualized, as listeners can stipulate what they like or dislike, and something akin to expert systems then suggests pieces that are most likely to fit your tastes (with a little randomness thrown in, to explore). With a little bit of training, stations fit very well to personal tastes and allows someone to find new artists from which you want to buy titles: descriptions and links for purchases are provided.

Pandora is free, so how is it financed? From ads you do not need to see (minimize the window...) and from sponsors that offer their own radio stations. Thanks to its algorithm, it is revolutionizing the way you find new music to listen to, as you do not have to rely on what airwave radio stations are deeming appropriate. And many artists are willing to put their music on Pandora for free, as it gives them a chance to be discovered. They may even be willing to pay to be listed.

This type of radio is vastly superior to anything radio could offer so far. Yet it is free. And artists are excited about it.

Friday, March 7, 2008

Open Source Beer

The open source movement defies economic logic if you just superficially glance at it: people give away freely their ideas, their efforts and potential profits for the public good. Many software packages or operating systems, often superior to their commercial counterparts were devised this way. Beer is now also open source.

That does not mean beer is free. Rather, you can now brew beer using a recipe that is published under a Creative Commons (Attribution-ShareAlike 2.5) license by Free Beer. This means you are allowed to sell and make a profit from this recipe, and are even allowed to create derivative recipes.

This project started in Denmark. Why do they do it? The site is silent on this, but I have no doubt they just find it useful, so why not?

PS: And speaking of having a good time, here is an original way to blow birthday cake candles.