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A Model of corporate donations to open source under hardware–software complementarity

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  • Luigi Di Gaetano

Abstract

In recent years there has been an increasing diffusion of open source projects as well as an increasing interest among scholars on the topic. Open source software (OSS) is developed by communities of programmers and users, usually sponsored by private firms, is available in the public domain and redistributed for free. We present a model of open and closed source software competition in a differentiated oligopoly of hardware–software bundles. Hardware and software are complement goods and OSS is financed by hardware firms. Results are several. Hardware firms contribute to the development of open source, although the level of contribution is not socially optimal. OSS availability has a positive impact on hardware firms’ profits and prices, whereas the closed source producer is harmed by OSS competition. Furthermore, we analyze under what circumstances hardware firms have incentives in investing in OS projects. The model can explain the increasing participation in OS projects of several embedded device producers and server producers. Although we focus on hardware, this model can be generalized to a wide range of complementary goods and services, such as IT training, web hosting, and Information and Communication Technology (ICT) consultancy services.

Suggested Citation

  • Luigi Di Gaetano, 2015. "A Model of corporate donations to open source under hardware–software complementarity," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 24(1), pages 163-190.
    • Handle: RePEc:oup:indcch:v:24:y:2015:i:1:p:163-190.
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L17 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Open Source Products and Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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