My previous post on open source licensing touched on the economic implications.
How do you make money from software that is free?
This article suggests 7 business strategies that explain why businesses use open source software to gain a competitive advantage.
Australian expert Roger Clarke has written a detailed paper on Open Business Models.
Open Source sets out the Open Source Case for Business.
See also here for a discussion on Free Software Business Models.
UPDATE: this paper by Aaron Schiff addresses 2 issues: the first looks at the incentives of
programmers to participate in open source projects; the second
considers the business models used by profit-making firms in the open
source industry, and the effects on existing closed source firms.