In the information economy, competitive maneuvers have raised the question of when firms can increase profits by giving away free products Microsoft and Netscape (now part of AOL) competed by finding ever more channels through which to freely distribute their browser. Adobe widely distributes its portable document reader. Real Audio and Microsoft permit anyone to download their multimedia players. Sun Microsystems acquired Star, the most successful developer of a Linux office suite, in order to give its products away. This paper presents an analysis and an answer to the free information question. Free strategic complements can raise profits for goods owned by the same firm. Our model predicts that firms may integrate or incur significant development costs in order to distribute portions of a pair of complements. In contrast, free strategic substitutes can lower profits for competitors inducing market exit when average cost curves are declining. Incumbents then benefit from reduced competition.
Parker, Geoffrey and van Alstyne, Marshall, "Information Complements, Substitutes, and Strategic Product Design" (2000). ICIS 2000 Proceedings. 2.