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Industry Equilibrium with Open Source and Proprietary Firms

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  • 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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References

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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. 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.
  2. Hasnas, Irina & Lambertini, Luca & Palestini, Arsen, 2014. "Open Innovation in a dynamic Cournot duopoly," Economic Modelling, Elsevier, vol. 36(C), pages 79-87.
  3. Éric Darmon & Dominique TORRE, 2014. "Open Source, Dual Licensing and Software Competition," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201405, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  4. 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.
  5. 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.
  6. Ramon Casadesus-Masanell & Gastón Llanes, 2011. "Mixed Source," Management Science, INFORMS, vol. 57(7), pages 1212-1230, July.
  7. Gauguier, Jean-Jacques, 2009. "L’industrialisation de l’Open Source," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/4388 edited by Toledano, Joëlle, September.

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