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The Myth of Free

64 Pages Posted: 24 Aug 2016 Last revised: 20 Jul 2017

John M. Newman

University of Memphis - Cecil C. Humphreys School of Law

Date Written: August 21, 2016

Abstract

Myths matter. This Article is the first to confront a powerful myth that pervades modern economic, technological, and legal discourse: the Myth of Free. The prevailing view is that consumers enjoy massive welfare surplus from a flood of innovative new products that are offered free of charge (Google search, Facebook's social network, etc.). Industry stakeholders, economists, and legal scholars created an origin story — a myth — that purports to explain how these products became Free. Zero marginal costs (the story goes) led inevitably to zero prices: Free was born.

But that origin story is fatally flawed. This Article formalizes, then debunks, the Myth of Free and its underlying assumptions. The Myth is riddled with internal inconsistencies, logical errors, and factual inaccuracies. In their place, this Article provides a revisionist history of Free, one that offers greater descriptive and predictive accuracy. Along the way, it solves several puzzles: Why has Free become the default online business model? Why does the age of abundance — so often predicted — always fail to materialize? And why is society nonetheless repeatedly taken in by such predictions?

The task is urgent: the Myth of Free is not benign. It has misled courts into granting protected legal status to Free-product suppliers, who have received unduly favorable treatment in cases ranging from contract disputes to antitrust and privacy litigation. It has also motivated policy proposals that call for eliminating IP and antitrust laws — and even competitive markets themselves — without adequate justification. Moreover, policies designed for a mythical world of abundance necessarily overlook the persistent problems attendant to scarcity, thereby creating substantial allocative inefficiencies. This Article seeks to dispel the Myth of Free before it can wreak further harm to societal welfare and the rule of law.

Keywords: Antitrust Free Products Goods, Regulating Technology Firms, Antitrust Silicon Valley, Regulating Google Facebook, Google YouTube contracts, Antitrust Zero Marginal Cost, Consumer Protection Silicon Valley, Regulating Silicon Valley, Google Facebook YouTube user agreements

JEL Classification: B21, B13, D00, D31, D41, D42, K12, K21, L11, L40, P10

Suggested Citation

Newman, John M., The Myth of Free (August 21, 2016). George Washington Law Review, Vol. 86, 2017; University of Memphis Legal Studies Research Paper No. 163. Available at SSRN: https://ssrn.com/abstract=2827277

John M. Newman (Contact Author)

University of Memphis - Cecil C. Humphreys School of Law ( email )

One North Front Street
Memphis, TN 38103-2189
United States
9016783224 (Phone)
9016783224 (Fax)

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