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(Self-)Regulation of a Natural Monopoly via Complementary Goods - the Case of F/OSS Business Models

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Markus Pasche () (University of Jena, Faculty of Economics)

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Abstract

The paper investigates the optimal regulation of a (software) firm which acts as a natural monopolist, who also offers a complementary good (IT services) on a competitive market. It is shown that a first-best-regulation accompanyied with an optimal taxation schedule in order to compensate the losses is equivalent to a cross-subsidisation of the software by the complementary good. This is the same result as in business models with Free/Open Source Software (F/OSS). Even if a price of zero for F/OSS does not reflect the use of resources for software development, the price system in F/OSS related markets leads to a welfare improving allocation. F/OSS license models can be seen as institutional arrangements which mimick a social planner.

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Paper provided by Friedrich-Schiller-Universit�t Jena, Wirtschaftswissenschaftliche Fakult�t in its series Jenaer Schriften zur Wirtschaftswissenschaft with number 18/2005.

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Date of creation: 10 Nov 2005
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Handle: RePEc:jen:jenasw:2005-18

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Related research
Keywords: natural monopoly regulation Ramsey pricing welfare complementary good Open Source Software

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Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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  1. Uwe Cantner & Kristina Dreßler & Jens J. Krüger, 2005. "Knowledge Compensation in the German Automobile Industry," Jenaer Schriften zur Wirtschaftswissenschaft 11/2005, Friedrich-Schiller-Universit�t Jena, Wirtschaftswissenschaftliche Fakult�t. [Downloadable!]
  2. Uwe Cantner & Kristina Dreßler & Jens J. Krüger, 2005. "Knowledge and Creative Destruction over the Industry Life Cycle - The Case of the German Automobile Industry," Jenaer Schriften zur Wirtschaftswissenschaft 05/2005, Friedrich-Schiller-Universit�t Jena, Wirtschaftswissenschaftliche Fakult�t. [Downloadable!]
  3. Meijers,Huub & Hollanders,Hugo, 2003. "Sources of Growth: Measuring the Knowledge Based Economy," Research Memoranda 032, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  4. Quah, Danny, 2003. "Digital Goods and the New Economy," CEPR Discussion Papers 3846, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Michael Katz & Richard Gilbert, 2001. "An Economist's Guide to U.S. v Microsoft," Competition Policy Center, Working Paper Series CPC01-019, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  6. Gandal, Neil, 1995. "Competing Compatibility Standards and Network Externalities in the PC Software Market," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 599-608, November. [Downloadable!] (restricted)
  7. Andreas Freytag & Dirk Schiereck & Thomas W. Thomas, 2005. "Consolidation and Market Power of Energy Utilities - The case of US-American and German Utility Takeovers," Jenaer Schriften zur Wirtschaftswissenschaft 07/2005, Friedrich-Schiller-Universit�t Jena, Wirtschaftswissenschaftliche Fakult�t. [Downloadable!]
  8. d'Aspremont, Claude & Cremer, Jacques & Gerard-Varet, Louis-Andre, 1990. "Incentives and the existence of Pareto-optimal revelation mechanisms," Journal of Economic Theory, Elsevier, vol. 51(2), pages 233-254, August. [Downloadable!] (restricted)
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