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Open Source Development in a Differentiated Duopoly

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  • Stephane Verani

    ()
    (Department of Economics, The University of Western Australia)

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    Abstract

    Open source software is released under an open source license giving individuals the right to use, modify, and redistribute freely the programs. This paper proposes a model of differentiated duopoly in which firms invest in the development of proprietary or open source software. The main findings are: (i) firms invest more when the products are substitutes; (ii) for substitute products, firms’ investment in software development is greatest when the software is open source; (iii) for close to perfect complements, firms’ investment in software development is greatest when the software is proprietary; and (iv) for substitute products, investment in open source software yields higher profits than investment in proprietary software.

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    File URL: http://www.biz.uwa.edu.au/home/research/discussionworking_papers/economics?f=147008
    File Function: First version, 2006
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    Bibliographic Info

    Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 06-05.

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    Length: 28 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:uwa:wpaper:06-05

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    1. Amir, Rabah & Wooders, John, 1997. "One-Way Spillovers, Endogenous Innovator/Imitator Roles and Research Joint Ventures," Economics Series 43, Institute for Advanced Studies.
    2. Richard J. Gilbert and Michael L. Katz., 2001. "An Economist's Guide to U.S. v. Microsoft," Economics Working Papers E01-300, University of California at Berkeley.
    3. Justin Pappas Johnson, 2002. "Open Source Software: Private Provision of a Public Good," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 637-662, December.
    4. Josh Lerner & Jean Tirole, 2005. "The Economics of Technology Sharing: Open Source and Beyond," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 99-120, Spring.
    5. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    6. Josh Lerner & Jean Tirole, 2003. "The Scope of Open Source Licensing," Levine's Working Paper Archive 506439000000000140, David K. Levine.
    7. Hertel, Guido & Niedner, Sven & Herrmann, Stefanie, 2003. "Motivation of software developers in Open Source projects: an Internet-based survey of contributors to the Linux kernel," Research Policy, Elsevier, vol. 32(7), pages 1159-1177, July.
    8. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    9. Alexandre Gaudeul, 2004. "Competition between open-source and proprietary software: the (La)TeX case study," Industrial Organization 0409007, EconWPA.
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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.

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