The Ordinary Price of Zero

Abstract

Classical demand theory can accurately predict consumer behavior when a good is free. We aim to demonstrate that the economic model presented in the 2007 paper “Zero as a special price: the true value of free products” is incapable of predicting consumer behavior when presented with a price of zero because the model lacks a budget constraint. Simply, including a budget constraint accounts for the observed behavior and there is no need to invoke “affect” to explain the discrepancy. This is demonstrated using mathematical programming and the well-known Cobb-Douglas functional form which shows that heavy consumption of a free good is a rational and predictable behavior.