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On substitution of intellectual property and free disclosure: an analysis of R&D strategies in software technologies

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Author Info
Elad Harison
Robin Cowan

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Abstract

Major firms have joined the open-source movement and have chosen to apply that development methodology in their projects. Our model examines the links between openness and innovation in software technologies by revealing how disclosure affects the technical quality of computer applications and the profits of myopic and far-sighted firms. The model analyzes the degree of disclosure that should be implemented to optimize profits in various market scenarios. Further, we reveal how social welfare of users (in terms of technical quality of the products that they implement) relates to profit-maximization decisions of the firm. If revenue is unresponsive to openness or slowly responds to it, the firm would prefer to leave the source code proprietary. Otherwise, if the market conditions change and the effective revenue increases rapidly enough with openness, the optimal strategy changes from entirely proprietary to some open-source development.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Economics of Innovation and New Technology.

Volume (Year): 13 (2004)
Issue (Month): 5 (July)
Pages: 477-487
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Handle: RePEc:taf:ecinnt:v:13:y:2004:i:5:p:477-487

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References listed on IDEAS
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  1. Oz Shy & Jacques-Françlois Thisse, 1999. "A Strategic Approach to Software Protection," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 8(2), pages 163-190, 06. [Downloadable!] (restricted)
  2. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring. [Downloadable!] (restricted)
  3. Lerner, Josh & Tirole, Jean, 2002. "Some Simple Economics of Open," Journal of Industrial Economics, Blackwell Publishing, vol. 50(2), pages 197-234, June. [Downloadable!] (restricted)
  4. Hertel, Guido & Niedner, Sven & Herrmann, Stefanie, 2003. "Motivation of software developers in Open Source projects: an Internet-based survey of contributors to the Linux kernel," Research Policy, Elsevier, vol. 32(7), pages 1159-1177, July. [Downloadable!] (restricted)
  5. Cowan,Robin & Harison,Elad, 2001. "Intellectual property rights in a knowledge-based economy," Research Memoranda 026, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
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This page was last updated on 2009-11-25.

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