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Non rivalry and complementarity in computer software

Marengo, Luigi and Pasquali, Corrado (2006): Non rivalry and complementarity in computer software.

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Abstract

In this paper we contend that – contrary to what argued by a vast part of the literature – computer software and, more in general, digital goods (i.e. symbolic strings on an electronic medium with some eco- nomic value) do not present the characteristics of a public good as they do not suffer from lack of rivarly and excludability any more than other durable goods which are regularly allocated on competitive markets. We argue instead that the “market allocation problem” – if any – with digital goods does not arise from their public nature but from some pe- culiar characteristics of the production technology. The latter presents the nature of a typical problem solving activity as far as the produc- tion of the first unit is concerned, this means that innovative activities in computer software are characterized by high degrees of interdepen- dencies, cumulativeness, sequentiality, path dependence and, more in general, sub-optimality arising from imperfect problem decompositions. As far as the production of further units is concerned, we observe in- stead high (but not infinite) expansibility and perfect codification (lack of any tacit dimension) which make diffusion costs rapidly fall. Given such claims, we argue that a standard “Coasian” approach to property rights, designed to cope with the externalities of semi-public goods may not be appropriate for computer software, as it may decrease both ex-ante incentives to innovation and ex-post efficiency of diffusion. On the other hand the institutional definition of property rights may strongly influence the patterns of technological evolution and division of labor in directions which are not necessarily optimal.

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