5 years late. But still makes a lot of sense…

“Why do people think “free” means diminished quality in one instance, and not in another? It turns out that our feelings about “free” are relative, not absolute. If something used to cost money and now doesn’t, we tend to correlate that with a decline in quality. But if something never cost money, we don’t feel the same way. A free bagel is probably stale, but free ketchup in a restaurant is fine. Nobody thinks that Google is an inferior search engine because it doesn’t charge.”

And this
“

With magazines it can clearly be effective to charge a minimal price, instead of nothing. But in most cases, just a penny—a seemingly inconsequential price—can stop the vast majority of consumers in their tracks. A single penny doesn’t really mean anything to us economically. So why does it have so much impact?
The answer is that it makes us think about the choice. That alone is a disincentive to continue. It’s as if our brains were wired to raise a flag every time we’re confronted with a price. This is the “is it worth it?” flag. If you charge a price, any price, we are forced to ask ourselves if we really want to open our wallets. But if the price is zero, that flag never goes up and the decision just got easier.
The proper name for that flag is what George Washington University economist Nick Szabo has dubbed “mental transaction costs.” These are, simply, the toll of thinking. We’re all a bit lazy and we’d rather not think about things if we don’t have to. So we tend to choose things that require the least thinking.

“The phrase “transaction costs” has its roots in the theory of the firm, Nobel Prize–winning economist Ronald Coase’s explanation that companies exist to minimize the communications overhead within and between teams. This refers mostly to the cognitive load of having to process information—figuring out who should do what, whom to trust, and the like.
Szabo extended this to purchasing decisions. He looked at the idea of “micropayments,” financial systems that would allow you to pay fractions of a cent per Web page you read, or millieuros for each comic strip you download. All these schemes are destined to fail, Szabo concluded, because although they minimize the economic costs of choices, they still have all the cognitive costs.”

Excerpt From: Anderson, Chris. “Free: The Future of a Radical Price.”

Despite the title – the books costs money 🙂