Is Bill Gates wrong about supply demand curves? In a recent tweet (Aug 14th, 2018, reproduced below), Bill Gates said that supply demand curves don't work for software because the first unit costs a lot and every unit after that is free. Isn't this just modeled by a horizontal supply line?

At the time I was in college, this was basically how the global economy worked...

This chart assumes that the total cost of production increases as supply increases. When a car company makes a new vehicle, the 10th car costs the same to manufacture as the 1000th.
But software doesn’t work like this. Microsoft might spend a lot of money to develop the first unit of a new program, but every unit after that is virtually free to produce.
Unlike the goods that powered our economy in the past, software is an intangible asset -- “something you can’t touch.” And it’s not the only example: data, insurance, e-books, even movies work in similar ways.
The portion of the global economy that doesn’t fit the old model just keeps getting larger. But the rules that govern the economy haven’t kept up. This is one of the biggest trends in the global economy that isn’t getting enough attention.
If you want to understand why this matters, I highly recommend the new book “Capitalism Without Capital” by @haskelecon and @stianwestlake. Here’s my review: link.
No, Bill Gates is correct here. The simple econ 101 cross model is based on a separation of the supply and demand side. Firms are price takers, they assume they can sell as much as they want at the prevailing price and their output decisions have no impact on the price. If firms are not price takers, they have to explicitly take into account how the demand side reacts since this determines the impact on prices. Now with huge returns to scale, price taking is usually not a sensible assumption and therefore the econ 101 cross an inappropriate model.