Open Source Software Subsidies and Network Compatibility in a Mixed Duopoly
AbstractFor many applications, open source software (OSS) can o¤er a high-quality alternative to proprietary software (e.g. Linux, Apache, Android,...). But even if OSS is usually free of charge, its installation and use require some skills. Should the government intervene to promote the di¤usion of OSS and provide some learning or nancial support to potential adopters? This paper examines whether public subsidies towards open source software is socially desirable and how the extent of compatibility between open source software and proprietary software can infuence the amount of subsidies. We consider a mixed duopoly model in which a proprietary software (PS) company competes with an open source software (OSS) community. Users are heterogeneous in their ability to use OSS, and their utility depends on the number of users who have adopted the same software or a compatible software (existence of network externalities). Four situations are distinguished: full compatibility between OSS and PS, full incompatibility, and one-way compatibility (either only OSS or PS is compatible). We show that if the government only takes care of consumer surplus, public subsidies are welfare-enhancing. But the optimal level of subsidies is larger with full compatibility and PS compatibility than full incompatibility and OSS compatibility. These results suggest that government policy towards OSS must be conditional to the degree of compatibility between PS and OSS.
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Bibliographic InfoPaper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201339.
Date of creation: Nov 2013
Date of revision:
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Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L17 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Open Source Products and Markets
- L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-20 (All new papers)
- NEP-COM-2013-12-20 (Industrial Competition)
- NEP-ICT-2013-12-20 (Information & Communication Technologies)
- NEP-IND-2013-12-20 (Industrial Organization)
- NEP-IPR-2013-12-20 (Intellectual Property Rights)
- NEP-NET-2013-12-20 (Network Economics)
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 Manenti, 2005. "Government Policies Supporting Open Source Software for the Mass Market," Review of Industrial Organization, Springer, vol. 26(2), pages 217-240, December.
- Bonaccorsi, Andrea & Rossi, Cristina, 2003. "Why Open Source software can succeed," Research Policy, Elsevier, vol. 32(7), pages 1243-1258, July.
- Schmidt, Klaus M. & Schnitzer, Monika, 2003. "Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market," CEPR Discussion Papers 3793, C.E.P.R. Discussion Papers.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Mustonen, Mikko, 2003. "Copyleft--the economics of Linux and other open source software," Information Economics and Policy, Elsevier, vol. 15(1), pages 99-121, March.
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