No oligopoly is possible in the Internet-era software market, because any Open Source implementation pre-emptively breaks the cartel! (As an example, the nascent oligopoly among Web application server vendors is coming under severe pressure from the Open Source JBoss and Enhydra. Expect to see prices tumble in this market).

And so, here we are, in a competitive and commodity market after all. We know that in such a market, the price of software will be close to the cost of producing it. So, if we can show that the cost of producing software is zero, then the price tag of zero is justified.

"Who will invest in software development if it doesn't yield a return?"

It sounds a preposterous argument on the face of it. How can the cost of software ever be zero? Doesn't it take significant effort to develop software? Even Open Source software is not miraculously produced. Programmers spend many man-months of effort on it. So how can the price of software ever be zero? Selling below cost is considered predatory pricing in many countries. In international trade, it's called "dumping". Is Open Source guilty of "dumping" or predatory pricing? If unchecked, this could destroy the commercial software industry. Who will invest in developing software if they cannot recoup their development costs?

The answer to this question may be surprising; because it overturns many of our fundamental assumptions about the way the world is run. Let's start by observing that if Linux had been developed by a commercial organization, it could never have been free. Commercial organizations, whether funded by debt or by equity, need to show a return on their investment. They cannot waste that investment by giving away their products. Therefore, even if it costs nothing to create additional copies of software (what's called the "marginal cost" of software), the initial costs of development must be spread over many copies, they must be priced in such a way that those costs can be recouped, and a positive return must be shown on the initial investment.