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Academic Articles Awards > General Antitrust

The hidden costs of free goods: implications for Antitrust Enforcement

Michal S. Gal and Daniel L. Rubinfeld, Antitrust Law Journal, forthcoming 2016

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Today a growing number of goods and services are provided in the marketplace free of charge.1 Some examples include Linux’s operating system, Google’s search engine, Facebook’s or Twitter’s social network, Wikipedia’s online encyclopedia, YouTube’s on-line video and music streaming services, Dropbox’s online storage services, and Typepad’s blogging platforms. While the phenomenon of free consumer goods is not new, there has been a rapid growth in the number of free goods and services (hereinafter: "free goods"); indeed, “free” and “the appearance of free” have become part of our ecosystem.2
This phenomenon has been driven by changes in modes of the production, distribution, and dissemination of information that have substantially reduced incremental costs. Such changes have encompassed not only commonly recognized methods such as the digital distribution and digital dissemination of information, but have also expanded through new technologies to include methods such as bio-printing and 3D printing.
Furthermore, the more that customer attention, personal information, and/or information-on-information become important intangible assets in the digital economy, the more common become exchanges in which information becomes a currency for what might otherwise be perceived as a free good. The spreading phenomenon of free goods is consistent with and perhaps even stimulated by the lower weight given by many consumers to privacy, and the high degrees of leniency towards the provision of targeted information.5 These trends have allowed firms to use the increased demand created by free goods to provide profitable services such as targeted ads. Of particular note is the seemingly irrational effect of free goods on consumer choices, as lately confirmed by studies in behavioral economics.6 Finally, free goods create externalities: the more individuals are accustomed to free goods in one market, the more they expect to receive them in related markets.

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