This study analyzes under which circumstances it may be desirable for the government to stimulate open source software as a response to market failures in software markets. To consider whether policy intervention can increase dynamic efficiency, we discuss the differences between proprietary software and open source software with respect to the incentives to innovate and market failures that may occur. The document proposes guidelines to determine which types of policy intervention may be suitable. Our most important finding is that directly stimulating open source software, e.g. by acting as a lead customer, can improve dynamic efficiency if (i) there is a serious customer lock-in problem, while (ii) to develop the software, there is no need to purchase specific, complementary inputs at a substantial cost, and (iii) follow-on innovations are socially valuable but there are impediments to contractual agreements between developers that aim at realizing such innovations.
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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Documents with number
181.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Jean-Charles Rochet Author-Email: rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006.
"Two-Sided Markets: A Progress Report,"
RAND Journal of Economics,
The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
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