A term often brought up by those who think there are too many LinuxDistributions. They observe the dominance of the Windows and proprietary software markets by a very small number (often only one) of products, and compare this with the over 300 active Linux distributions, and think that this points to something wrong with the latter.

In fact, this is a load of nonsense. In a free, competitive market, the number of competitors is always going to be exactly the number the market can sustain, no more, and no less. Back in the late 1980s, I remember seeing an issue of PC Magazine which did a blockbuster review of about 60 different word-processing packages for MS-DOS. Nowadays you would be lucky to find half a dozen different packages for Windows.

In economics, we talk about the “fixed cost” of setting up to manufacture something (product design, building of factories etc), versus the “unit cost” of building each piece of product for sale. Clearly, your profit depends on how much you can sell each unit for, minus the unit cost, plus you also have to amortize (apportion some share of) the fixed cost over the first n units you sell. For instance, you might expect to recover the fixed cost over the first two years of selling the product, just in time to develop a new version with an new amount of fixed cost.

In software, the fixed cost can be quite high for a large and complex piece of software, while the unit cost is really just the cost of duplicating bits, which is as close to zero as makes no difference.

-- CategoryEconomics