ECONOMICS

Application of Microeconomic Principles and Theories

Application of Microeconomic Principles and Theories

Part 1

Is Open Sourced software really cost free or is it a fallacy? Further, why are the big companies investing and spending lots on development of open sourced software?

Microeconomics is a discipline that offers a variety of theories and principles that are applicable to and can offer explanatory insights on a pattern of events, behavioral aspects as well as business, industry and the global economy. Microeconomics and its concepts offer explanations over the relationship between demand and supply, which is logical and makes sense at the end of the day. For instance, consider there is a competitor in your industry that reduces their product price. With this change of event it can be concluded, based on economic principles, that your product would encounter a decrease in its demand. This is a noticeable and economically forecasted pattern of event, which is pretty much expected until you decrease your own products price to that level.

This section of the paper would talk about a certain concept of production that is renowned in the technology spheres. This concept is something very interesting and it is called open sourced software. There is something very interesting about this software. Google's newly launched Android OS is open-sourced software; as such it has provided a free platform for technology developers to make their products on the platforms parameters. It sometimes become hard to find the benefits of selling free software, for big corporations, but it is obvious that Google has a lot to gain from it. Moreover, the discussion would not be on Android rather the question I would like to ask is why are the big companies investing and spending lots on development of open sourced software's?

A simple explanation to the purported question is that it makes business sense to pursue this investment. It is a strategy which can be observed within the dynamic of simple economic concepts of complements and substitutes. Substitutes are those products that are similar to another product, such that if the first product is not available you can certainly avail the option to buy a second very similar product. Beef and Chicken are substitutes (Bade & Parker, 2001). Now consider, if the price of beef rises, it would lead to the demand for chicken to increase. Whereas complements are those products that are mostly bought together, an apt example would be gasoline and cars. Similarly OS like Windows is a perfect complement for a personal computer. Given these concepts, it is also assumed that if price of a complement product decreases it may very well lead to increase in demand of your product. For instance, price reduction in Miami flights, will cause room prices in Miami Hotels to increase. This strategy would be pursued in anticipation that more consumers will now board the cheap Miami flights (Bulow et.al, 1985).

Now coming back to the question, open sourced software's such as LINUX is offered free of cost, than how does it benefit the ...