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Competition and Innovation in a Technology Setting Software Duopoly

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Author Info

  • Jürgen Bitzer
  • Philipp J. H. Schröder

Abstract

Recently the software industry has experienced fundamental changes in market structure through the entry of open source competitors, e.g. Linux's entry into the operating systems market. In a simple model we examine the effects of such a change in market structure from monopoly to duopoly under the assumption that software producers compete in technology rather than price or quantities. The model includes the presence of technological progress and menu costs of adjusting existing software, i.e. innovation. It is found that: (i) moving from monopoly to duopoly does increase the technology level set by firms in the software industry; (ii) a duopoly adjusts more readily to global technological progress than a monopolist. Furthermore, results are presented comparing open source versus for-profit firms in terms of technology levels and innovation.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.40688.de/dp363.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 363.

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Length: 18 p.
Date of creation: 2003
Date of revision:
Handle: RePEc:diw:diwwpp:dp363

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Related research

Keywords: open source software; strategic interaction; duopoly; menu costs;

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References

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  1. Julio J. Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," NBER Working Papers 1943, National Bureau of Economic Research, Inc.
  2. Bitzer, Jurgen & Schroder, Philipp J.H., 2005. "Bug-fixing and code-writing: The private provision of open source software," Information Economics and Policy, Elsevier, vol. 17(3), pages 389-406, July.
  3. Lerner, Josh & Tirole, Jean, 2002. "Some Simple Economics of Open," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 197-234, June.
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Cited by:
  1. 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.
  2. repec:ste:nystbu:05-11 is not listed on IDEAS

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