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Consumer Welfare and Market Structure in a Model of Competition Between Open Source and Proprietary Software

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Author Info
Alexia Gaudeul () (Centre for Competition Policy, University of East Anglia)

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Abstract

I consider a Vickrey-Salop model of spatial product differentiation with quasi-linear utility functions and contrast two modes of production, the proprietary model where entrepreneurs sell software to the users, and the open source model where users participate in software development. I show that the OS model of production may be more efficient from the point of view of welfare that the proprietary model, but that an OS industry is vulnerable to entry by entrepreneurs while a proprietary industry can resist entry by OS projects. A mixed industry where OS and proprietary development methods coexist may exhibit large OS projects cohabiting with more specialized proprietary projects, and is more efficient than the proprietary model of production from the point of view of welfare.

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Publisher Info
Paper provided by Centre for Competition Policy, University of East Anglia in its series Working Papers with number 08-31.

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Length: 31 pages
Date of creation: Oct 2008
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Handle: RePEc:ccp:wpaper:wp08-31

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Related research
Keywords: open source; proprietary; software industry; copyright; non-profit organization; mixed market; welfare; spatial product differentiation;

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
L17 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Open Source Products and Markets
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights
O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy

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References listed on IDEAS
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  1. Justin Pappas Johnson, 2002. "Open Source Software: Private Provision of a Public Good," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 11(4), pages 637-662, December. [Downloadable!] (restricted)
  2. Gaudeul, Alexia & Peroni, Chiara & Mathieu, Laurence, 2009. "Blogs and the Economics of Reciprocal Attention," MPRA Paper 11298, University Library of Munich, Germany. [Downloadable!]
  3. Alex Gaudeul, 2005. "Public provision of a private good: What is the point of the BSD license?," Industrial Organization 0511002, EconWPA. [Downloadable!]
  4. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership Of Public Goods," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1343-1372, November. [Downloadable!] (restricted)
    Other versions:
  5. Mikko Mustonen, 2005. "When Does a Firm Support Substitute Open Source Programming?," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 14(1), pages 121-139, 03. [Downloadable!] (restricted)
  6. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
    Other versions:
  7. Sebastian von Engelhardt & Sushmita Swaminathan, 2008. "Open Source Software, Closed Source Software or Both: Impacts on Industry Growth and the Role of Intellectual Property Rights," Discussion Papers of DIW Berlin 799, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  8. Edward L. Glaeser, 2002. "The Governance of Not-for-Profit Firms," Harvard Institute of Economic Research Working Papers 1954, Harvard - Institute of Economic Research. [Downloadable!]
  9. Jeffrey P. Ballou, 2005. "An Examination of the Presence of Ownership Effects in Mixed Markets," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(1), pages 228-255, April. [Downloadable!] (restricted)
  10. Riccardo Leoncini & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2008. "You Won the Battle. What about the War? A Model of Competition between Proprietary and Open Source Software," Department of Economics Working Papers 0811, Department of Economics, University of Trento, Italia. [Downloadable!]
  11. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring. [Downloadable!] (restricted)
  12. Schmidt, Klaus M. & Schnitzer, Monika, 2003. "Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market," CEPR Discussion Papers 3793, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Bruno Frey, 1999. "State Support and Creativity in the Arts: Some New Considerations," Journal of Cultural Economics, Springer, vol. 23(1), pages 71-85, March. [Downloadable!] (restricted)
  14. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March. [Downloadable!] (restricted)
  15. Edward L. Glaeser, 2002. "The Governance of Not-For-Profit Firms," NBER Working Papers 8921, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier. [Downloadable!] (restricted)
  17. Vickrey, William S. & Anderson, Simon P. & Braid, Ralph M., 1999. "Spatial competition, monopolistic competition, and optimum product diversity," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 953-963, October. [Downloadable!] (restricted)
  18. Bitzer, Jurgen, 2004. "Commercial versus open source software: the role of product heterogeneity in competition," Economic Systems, Elsevier, vol. 28(4), pages 369-381, December. [Downloadable!] (restricted)
  19. Alex Gaudeul, 2004. "The LaTeX project: A case study of open source software," Industrial Organization 0409010, EconWPA, revised 20 Apr 2005. [Downloadable!]
    Other versions:
  20. Alexia Gaudeul, 2008. "Open Source Licensing in Mixed Markets, or Why Open Source Software Does Not Succeed," Working Papers 08-2, Centre for Competition Policy, University of East Anglia. [Downloadable!]
  21. Braid, Ralph M., 2004. "Uneven spacing in free-entry equilibrium for spatial product differentiation," Economics Letters, Elsevier, vol. 84(2), pages 155-161, August. [Downloadable!] (restricted)
  22. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February. [Downloadable!] (restricted)
    Other versions:
  23. Stefano Comino & Fabio Manenti, 2005. "Government Policies Supporting Open Source Software for the Mass Market," Review of Industrial Organization, Springer, vol. 26(2), pages 217-240, December. [Downloadable!] (restricted)
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