Economics of How it Works

In demand curves, consumer value is represented by the gold area below the curve but above price. It's the value that consumers get to keep for themselves.

Before software is free and open, consumer surplus looks like this:

Note that the blue area represents the earnings for authors and developers than can be used for future development. After software becomes free and open, consumer surplus looks like this.



This is great for consumers, but if there's no blue region, resources for future development are limited. So, there is less innovation. If you can add proprietary value then make it free and open in successive rounds of development, progress might look like this:



All the blue areas eventually become gold but they give developers a temporary set of resources that they can use before consumers get all the value.

A detailed presentation that describes flexible copyrights is available