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The Economic Properties of Software

Sebastian Engelhardt ()

No 2008-045, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: 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 emphasise 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 funtionality of the algorithms but not in the underlying information.

Keywords: digital goods; compatibility; information good; network effects; nonrivalry; open source; recombinability; software (search for similar items in EconPapers)
JEL-codes: D62 D82 D83 D85 K11 L17 (search for similar items in EconPapers)
Date: 2008-06-04
New Economics Papers: this item is included in nep-com, nep-dev, nep-ipr, nep-pr~, nep-law, nep-mic and nep-net
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