Competition and Innovation in a Technology Setting Software Duopoly
AbstractRecently 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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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 363.
Length: 18 p.
Date of creation: 2003
Date of revision:
open source software; strategic interaction; duopoly; menu costs;
Find related papers by JEL classification:
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-07 (All new papers)
- NEP-COM-2004-06-07 (Industrial Competition)
- NEP-INO-2004-06-07 (Innovation)
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