Quora Answer: Does Giving Away Free Products Violate the “No Such Thing as a Free Lunch” Rule?

The following is my answer to a Quora question: “Does a company giving away free products violate the ‘no such thing as a free lunch’ rule of economics?”

“No such thing as a free lunch” is not a rule of economics.  It is a maxim, an adage.  Within the context of economics, it is the principle that since resources are finite, when something is free, there is an opportunity cost or a hidden externality that has to be borne by someone.

Variations of this adage have been around since, at least, the end of the 19^th century.  It is based on the saloons of San Francisco that offered a free lunch to patrons who bought a drink.  Since the food was salty, these patrons invariably bought more drinks to wash down the food.  The “free lunch” had a hidden cost.  Robert Heinlein popularised it in his novel, “The Moon is a Harsh Mistress”.  In it, a character pointed out that places that offered a “free lunch” charged more for the drinks.

In regard to the companies, the “free” products are not free.  They are part of a budget, likely marketing.  The company bears the cost, and makes a loss with the intent of gaining market share, or market awareness.  The customer is still paying for that product, whether in time, in the increased cost of other products in the company, or in the opportunity cost of trying something from a rival business.