Software Innovation and the Open Source threat
AbstractIn this paper I study how innovation investment in a software duopoly is affected by the fact that one of the firms is, or might become Open Source. Firms can either be proprietary source (PS) or open source (OS) and have different initial technological levels. An OS firm is a for profit organization whose basic software is OS and it is distributed for free. The OS firm, however, is able to make profits from selling complementary software and, on the cost side, it receives development help from a community of users. I first compare a duopoly composed by two PS firms with a mixed duopoly of a PS and OS firm and I find that a PS duopoly might generate more innovation than a mixed duopoly if the initial technological gap between firms is small. However if this gap is large, a PS duopoly generates less innovation than a mixed duopoly. I then extend the setting to allow PS firms to switch to OS or to remain PS. A PS firm wants to become OS if it gets behind enough in the technological race against a competitor. I find that the outside option to become OS might soften competition on innovation since the technological leader prefers to reduce his innovation investment to avoid the OS switch of the follower. Therefore, although the switch to OS could generate higher investment levels ex-post it might generate lower investment ex-ante. In this context I find that a government subsidy to OS firms could be potentially harmful for innovation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 09-15.
Length: 31 pages
Date of creation: Sep 2009
Date of revision: Sep 2009
Contact details of provider:
Web page: http://www.NETinst.org/
Software Market; Open Source; Innovation Incentives;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L17 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Open Source Products and Markets
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
- NEP-COM-2009-10-24 (Industrial Competition)
- NEP-INO-2009-10-24 (Innovation)
- NEP-IPR-2009-10-24 (Intellectual Property Rights)
- NEP-TID-2009-10-24 (Technology & Industrial Dynamics)
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.:
- Stefano Comino & Fabio M. Manenti, 2007.
"Dual licensing in open source software markets,"
Department of Economics Working Papers
0718, Department of Economics, University of Trento, Italia.
- Alexandre Gaudeul, 2004. "Competition between open-source and proprietary software: the (La)TeX case study," Industrial Organization 0409007, EconWPA.
- Gaudeul, Alexia, 2008.
"Consumer welfare and market structure in a model of competition between open source and proprietary software,"
19555, University Library of Munich, Germany.
- Alexia Gaudeul, 2008. "Consumer Welfare and Market Structure in a Model of Competition Between Open Source and Proprietary Software," Working Papers 08-31, Centre for Competition Policy, University of East Anglia.
- Stefano Comino & Fabio Manenti, 2005. "Government Policies Supporting Open Source Software for the Mass Market," Review of Industrial Organization, Springer, vol. 26(2), pages 217-240, December.
- Jürgen Bitzer & Philipp J.H. Schröder, 2005. "The Impact of Entry and Competition by Open Source Software on Innovation Activity," Industrial Organization 0512001, EconWPA.
- Linus Dahlander, 2005. "Appropriation And Appropriability In Open Source Software," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 9(03), pages 259-285.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicholas Economides).
If references are entirely missing, you can add them using this form.