The Economic Properties of Software
Sebastian Von Engelhardt
University of Jena - Economics Department
June 4, 2008
Jena Economic Research Papers 2008-045
Software is a good with very special economic characteristics. Taking a general definition of software as its starting-point, this article systematically elaborates the central qualities of the commodity which have implications for its production and cost structure, the demand, the contestability of software-markets, and the allocative efficiency. In this context it appears to be reasonable to subsume the various characteristics under the following generic terms: software as a means of data-processing, software as a system of commands or instructions, software as a recombinant system, software as a good which can only be used in discrete units, software as a complex system, and software as an intangible good. Evidently, software is characterized by a considerable number of economically relevant qualities - ranging from network effects to a subadditive cost function to nonrivalry. Particularly to emphasis is the fact that software fundamentally differs from other information goods: First, from a consumer’s perspective the readability and other aspects concerning how the information is presented, is irrelevant. Second, the average consumer/user is interested only in the functionality of the algorithms but not in the underlying information.
Number of Pages in PDF File: 27
Keywords: digital goods, compatibility, information good, network effects, nonrivalry, open source, recombinability, software
JEL Classification: D82, D83, D62, D85, K11, L17, O34working papers series
Date posted: July 8, 2009
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