"The Free Software Movement and the Free Culture Movements have radically changed the ways of producing software and knowledge goods. These changes have caused some markets -- such as those for Internet software, programming tools and encyclopedias -- to shrink considerably or disappear altogether. These areas have become dominated by free programs such as Apache, Firefox, WordPress, non-proprietary programming languages such as Python, open development environments such as Eclipse, and by the free Internet encyclopedia Wikipedia. They have largely driven out competing offers which (as usual in capitalism) are only available for sale.
Sometimes, free software is produced by companies that use it to indirectly make money, e.g. by selling support, documentation, or suitable hardware.
But many projects are driven by communities of people that contribute voluntarily and without pay. Participants may be motivated by the desire to use the software they help creating or they may simply enjoy doing what they do. Others participate in order to improve their knowledge, to demonstrate their skills, or to give something back to the community (Lakhani and Wolf 2005). Free software and free culture projects are thus frequently benefit-driven rather than profit-driven: Participants get involved in order to realize some practical or social benefit (getting useful software, learning, getting community recognition, doing something pleasurable), not because of monetary gains.
Modern, neoclassical economy theory sees companies as a means of reducing so-called transaction costs (Coase 1937). As a company owner, I can assign tasks to my staff instead of having to buy and negotiate each small service individually. The employees benefit by knowing in advance how much they will earn, instead of having to sell themselves day by day in the market, with uncertain results. But they have to accept subordinate positions in a hierarchy and must follow the orders of the management. Market relations, on the other hand, take part between actors who are formally (though often not actually) equal, but they are always merely functional: I'm not interested in the others as human beings, I merely see them as potential trading partners, potential buyers and sellers.
Standard neoclassical theory doesn't know ways of interaction beyond the market and the firm, but the communities of people who produce on the basis of voluntary cooperation indicate that it missed something. Since everybody participates voluntarily, nobody can order the others around. The term Peer Production has been coined by Yochai Benkler (2006) to express this stark contrast to the hierarchical nature of firms: participants work together on an equal footing, as peers.
And in contrast to the market, others aren't merely potential trading partners, but people cooperating with me in order to reach a common goal.
Peer production is based on contributions, not on exchange. And while trade (exchange) tends to be a zero-sum game, contributing isn't. If I make a "good deal," it quite often means that my trading partner made a bad one. But if somebody contributes something useful, everybody wins.
A world where producers have to sell what they produce and users have to buy what they want to use, inevitably creates antagonisms. One person's income is another person's cost. And an increased market share for one producer means that the others producing the same goods will earn less, hence producers are forced to compete with each other. The same conflict of interest as between sellers and buyers in general exists between employees and employers: the former want to sell their labor power as dearly as possible, while the latter strive for a maximum of labor at minimal cost. Benefit-driven production doesn't know these antagonisms, since fulfilling my needs doesn't have to come at the cost of your needs. On the contrary, peer production works so well because the participants help each other to reach their goals and fulfill their needs. Everybody benefits.  Voluntary Production for Others
Benefit-driven production shouldn't be misunderstood as production merely for oneself. It is true that peer producers often begin by "scratching a [...] personal itch," as Eric Raymond (2001) put it; but at the same time, what they do is also useful for others. And people frequently engage not because of their consumption needs, but because of their productive needs: They contribute because they enjoy the tasks they are doing, because they learn something, or because they want to give something back to the other contributors.
The fact that peer production is always production for others refutes the popular conception that without a market system, people would have to fall back into some kind of Robinson mode: Everybody would only produce for themselves or their family and large-scale cooperation would cease to exist. It's pretty clear that such a solitary way of production wouldn't get one very far. Another well-known alternative are centralized planned economies--the former "real socialism." In such economies, society as a whole functions like a big company. Management (the planners) decides what should be done, assigns the required tasks, and monitors that they are executed correctly. This alternative hasn't worked well in the past and doesn't sound very attractive: You are still a dependent employee (though now of the state) and must follow the orders of your superiors.
Peer production, on the other hand, is production for others which is neither based on coercion nor motivated by monetary gain. Peers produce for others because they can, and because it is a way for them to find further contributors. The more people use the results of a project, the more potential contributors exist, since people who decide to join forces as occasional or regular contributors are typically already users of the project they choose to support. If a project doesn't share with others by coproducing for them, it endangers its opportunity to win new members.
To distribute tasks, peer producers use an open process that has become known as "Stigmergy" (cf. Heylighen 2007). Participants leave hints (Greek: stigmata) about started or desired activities, encouraging others to follow these hints and take care of the desired tasks. Such hints, e.g. to-do lists and bug reports in software projects and "red links" pointing to missing articles in the Wikipedia, constitute an important part of the communication.
All participants follow the hints that interest them most. This leads to an automatic prioritization of tasks (the more people care for a task, the more likely it is to be picked up by somebody). It also ensures that the different talents and skills of contributors are applied in a more or less optimal way (since people tend to pick up those tasks they think they are good at). And since everybody is free in choosing the tasks they want to do, participants will generally be more motivated than in a market-based system or a planned economy, where they have to follow the orders of their supervisor or client." (http://www.keimform.de/2011/benefit-driven-production/)
Paper: The Emergence of Benefit-Driven Production. Christian Siefkes.