Originally Published: Tuesday, 29 February 2000 Author: Jon-Pal Mouzakis Gagnum
Published to: featured_articles/Featured Articles Page: 1/1 - [Printable]

Perfect in Every Way

Linux, despite being an entity in itself, has many distributions. As I understand it, these distributions compete for a type of "market share" as it were. Which distribution will have the most "subscribers?" Which one will manage to convert the most computer users to their cause? Each distribution has its idiosyncrasies: being extremely user-friendly or unfriendly, coming with many applications or few, or being suited for "newbies" or not. This whole bustling community of distributions -- Debian, RedHat, Mandrake, PhatLinux, CorelLinux, Storm, Caldera, and more -- is extremely reminiscent of the economic concept of perfect competition.

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Linux, despite being an entity in itself, has many distributions. As I understand it, these distributions compete for a type of "market share" as it were. Which distribution will have the most "subscribers?" Which one will manage to convert the most computer users to their cause? Each distribution has its idiosyncrasies: being extremely user-friendly or unfriendly, coming with many applications or few, or being suited for "newbies" or not. This whole bustling community of distributions -- Debian, RedHat, Mandrake, PhatLinux, CorelLinux, Storm, Caldera, and more -- is extremely reminiscent of the economic concept of perfect competition.

There are five basic criteria here. The distributors are price takers. They create a homogeneous product. They posses perfect knowledge. There exists a large number of small firms. There is free entry and exit from the market. All of these criteria can be met if one looks at this mini-market that we have created that is constituted by various Linux distributions. Everyone is a price-taker since the price is, at least in theory, zero. No one has any control over the price since there is no price to their product. Everyone is, for all intents and purposes, creating a homogeneous product. In this case, it is the Linux operating system with slight variations here and there (one comes with KDE and one does not, one has Corel WordPerfect 8 and the other does not). Everyone possesses perfect knowledge, for such is the beauty of Open Source after all -- everyone sharing ideas and creating something better than before. There exist a large number of small firms that are, in this case, the various distributions of Linux. The only reason "small" is emphasized at all is due to the fact that they have no say over the price, but we've been over that already. And lastly, there is free entry and exit, seeing as how any single distribution could simply call it quits, or conversely, any new distribution could come up with a neat name and interesting variation of Linux and proclaim itself in this mini-market.

Having established the fact that in this enclosed market we have perfect competition, it is a good idea now to see what benefits can be reaped from this. A perfectly competitive market operates, first of all, efficiently, both productively -- at minimum average cost -- and allocatively. The latter implies that nobody can be made better off without anyone else being worse off (or in a Production Possibility Frontier, more of a product cannot be produced without the tradeoff of another good). However, this also implies that the price is equal to marginal cost (through advanced utility theory). But then, if the price is equal to zero, then the marginal cost of producing one more unit is also zero! But in perfect competition, P=MR=MC=minAC. That is, the price is equal to the marginal revenue, which is equal to the marginal cost, which is equal to the minimum average cost. But this is wonderful, since because the price is necessarily zero, all costs must also be zero in addition to marginal revenue. This goes perfectly in tandem with the very essence of Open Source and Linux -- profit-less, cost-less, and priceless in both senses of the word!

Given, the above example may seem slightly far-fetched. After all, Linux isn't really free is it? To download it, you pay money albeit not necessarily to the Linux distribution. If you can't download it, then you have to necessarily buy a version of Linux in stores. And so, what was all that business about no price, and therefore no costs and revenues? Well, it was a little theoretical, but the general idea still applies. The reason for this lies with the fact that the money you pay for your version of Linux goes directly back to the developers. Imagine a progressive taxation system, where the government redistributes income from the rich to the poor. Better yet, imagine a government which provides tax incentives to companies that can provide investment for the future. This is just what is happening. The money you pay for your Linux distribution goes back to those who are constantly developing ideas and concepts for Open Source that everyone is welcome to use at any time. The "incentive" in this case is the monetary payments for the "free" OS that is given to developers of Open Source so that they may provide "investment" for the future. This revenue is paid to these developers to cover their cost, or more correctly, opportunity cost of aiding with the development of Open Source. This opportunity cost is basically what these developers could be doing in lieu of helping out the Linux community.

In this sense, there does exist costs and revenues in this miniature market we've constructed, but the revenues and costs cancel out perfectly. There are zero economic profits in this situation. Total revenues minus total costs equal zero. And yet, this is not the only boon that Linux has to offer. In essence, it has a perfectly flexible labour market. There are, in essence, absolutely no rigidities in this miniature market of ours, mainly owing to the fact that there is no government intervention. There exists no labour unions which bargain for better wages, neither are there minimum wages imposed by the government that invariably create inefficiencies in the labour market. Due to the lack of any government, there are no non-wage costs such as welfare benefits (unemployment benefits). There are almost perfectly flexible working hours in that there is no set daily working period (i.e. part-time working is taken to a whole new level). Occupational and geographic mobility is perfectly addressed since a developer from one distribution can just as easily move to another with the skills he or she already retains. Geographical mobility is no problem with the Internet as a unifying agent. The nature of the work does not permit for any immobilities in terms of labour at all. Education -- training and re-training -- is taken care of automatically as dictated by the precepts of Open Source. This, after all, is the nature of the online Linux community -- the sharing of data free of charge which "updates" people's knowledge of Linux daily. The above testifies to a "labour market" that is perfectly flexible and would work without any rigidities.

And yet, even this has its own implications. We have covered three main aspects: operating competitively, providing incentives for future investment, and the existence of a flexible labour market. These three things combined are the main factors that bring about structural reform in any modern economy. These are factors that result in increases in productivity -= output per unit input -- and productivity itself is a factor that invariably leads to growth in an economy. So what has this whole deductive process led us to conclude? The conclusion is that Linux itself provides a model that can be followed, not only on the microeconomic level, but also on the macroeconomic one. It can provide a miniature microeconomic model in the form of its various distributions that can, in theory at least, provide a decent formula for any government to follow. It is a formula that provides for increases in productivity through structural reforms that will invariably lead to sustainable growth without risking inflation, overheating or international trade deficits. Once again, Linux proves its supremacy to all.

Jon-Pal currently works for Linux.com in the multimedia section as Senior Editor. He can mostly be found either delving deep into a fantasy book, working on his own upcoming novel or editing articles. He is Co-Editor-in-Chief of his school's newspaper (Blue & Gold) where he hones his editing skills, though creative writing holds stronger interest for him. He is 17 years old and hopefully next year he'll be continuing his voluntary work for Linux.com at Harvard University (side by side with Marius at MIT!). His short stories are available for viewing pleasure at http://www.crockster.net.





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