Free Riders in the Sky


In February I presented a possible mechanism for the transfer of value between companies and customers. Here I will be addressing possible solutions to the “free rider” problem with this value transfer. The free rider could take advantage of the system by not contributing to the growth or capitalization of a company. Yet, they could benefit from the products produced. If a system of value transfer were to be used, we would need safe guards against free riders. Here I present two possible solutions.

1. Magazine Subscription- As a consumer I can either buy the products one by one or I can subscribe to the service. If software companies were to put subscription models into place, I, as a subscriber, would receive products as they were released. Like a magazine subscription, I do not know exactly what it is that I am purchasing when I subscribe; I only believe that the company will provide quality output worthy of my subscription money based on past experience with the publication. If after having received several unsatisfactory “issues” I could always cancel my subscription, or simply not renew the following year. This model would provide the manufacturer with a pre-product capital injection, which facilitates the development of further products without being forced to sell the product.

The customer pays for the development, not the product. The subscription rate would differ according to the “quality” of the publication. This is where we can see the evolution of company value. As a subscriber, I can subscribe to blackhole for a low rate, because they could be considered an inde-zine and relatively unknown. As their popularity grows, the subscription rate would grow as well. However, I continue to receive my “issues” at my low subscription rate.

2. Options- buy now, cash in later-

The ability to secure the option to purchase a stock at some point in time for a fraction of the stocks price translates well for our purpose here as well. I, for example, do not see the need for Sun Microsystems products in my near future. However, I am aware that they are producing high quality goods that I could possibly need at a future point in time. Knowing this, I purchase “options” in Sun Microsystems. These “options” give me the right to get Sun’s products at a any point in the future, should I decide to use them. We will assume that Sun continues to provide high quality, value added products well into the future. As such, the cost of “options” to use Sun’s products continues to increase, so I can benefit in one of two ways. One: I can use sun products for a much lower price than the current market value, because I bought my options early, or Two: I can sell the “options” at the current rate and realize the capital gains due to the increased cost of opting to by Sun products.

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