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Industry equilibrium with open-source and proprietary firms

  • Llanes, Gastón
  • de Elejalde, Ramiro

We present a model of industry equilibrium to study the coexistence of open-source and proprietary firms. Two novel aspects of the model are (i) participation in open source arises as the optimal decision of profit-maximizing firms, and (ii) open-source and proprietary 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 and a complementary private good. Open-source firms share their technological advances on the primary good, whereas proprietary firms keep their innovations private. The main contribution of the paper is to determine conditions under which open-source and proprietary firms coexist in equilibrium. Interestingly, this equilibrium is characterized by an asymmetric market structure, with few large proprietary firms and many small open-source firms. We also study the limiting economy and present conditions under which large numbers favor cooperation in R&D.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 1 ()
Pages: 36-49

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Handle: RePEc:eee:indorg:v:31:y:2013:i:1:p:36-49
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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