The economics of software distribution over the Internet revisited

Yaron Ilan


Research on the information economy has been based on the assumption that production of software involves low, or even zero, marginal costs. This paper examines this assumption. It argues that the act of driving Internet traffic to an Internet server is an act of distribution and that costs associated with it are actually software production and distribution costs. It suggests a generalized model, the Internet distribution chain, using which the variable and marginal cost of production and distribution can be revealed. Using this model the paper will show that marginal costs associated with the production and distribution of software actually resemble those of traditional products.

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