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Industry Equilibrium with Open Source and Proprietary Firms

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Author Info

  • Gastón Llanes

    () (Harvard Business School, Entrepreneurial Management Unit)

  • Ramiro de Elejalde

    () (Universidad Carlos III de Madrid)

Abstract

We present a model of industry equilibrium to study the coexistence of Open Source (OS) and Proprietary (P) firms. Two novel aspects of the model are: (1) participation in OS arises as the optimal decision of profit-maximizing firms, and (2) OS and P firms may (or may not) coexist in equilibrium. Firms decide their type and investment in R&D, and sell packages composed of a primary good (like software) and a complementary private good. The only difference between both kinds of firms is that OS share their technological advances on the primary good, while P keep their innovations private. The main contribution of the paper is to determine conditions under which OS and P coexist in equilibrium. Interestingly, this equilibrium is characterized by an asymmetric market structure, with a few large P firms and many small OS firms.

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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-149.

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Length: 47 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:hbs:wpaper:09-0xx

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Related research

Keywords: Industry Equilibrium; Open Source; Innovation; Complementarity; Technology Sharing; Cooperation in R&D;

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Open source and private firms can coexist
    by Economic Logician in Economic Logic on 2009-08-14 14:17:00
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Cited by:
  1. Andreas Freytag & Sebastian von Engelhardt, 2010. "Institutions, Culture, and Open Source," Jena Economic Research Papers 2010-010, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Ramon Casadesus-Masanell & Gaston Llanes, 2009. "Mixed Source," Working Papers 09-06, NET Institute, revised Sep 2009.
  3. Sebastian von Engelhardt, 2010. "Quality Competition or Quality Cooperation? License-Type and the Strategic Nature of Open Source vs. Closed Source Business Models," Jena Economic Research Papers 2010-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  4. Fershtman, Chaim & Gandal, Neil, 2011. "A Brief Survey of the Economics of Open Source Software," CEPR Discussion Papers 8434, C.E.P.R. Discussion Papers.

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  1. Economic Logic blog

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