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Mixed Source

Author

Listed:
  • Ramon Casadesus-Masanell

    () (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

  • Gastón Llanes

    () (Escuela de Administración, Pontificia Universidad Católica de Chile, Vicuna Mackenna 4860, Macul, Santiago, Chile)

Abstract

We study competitive interaction between a profit-maximizing firm that sells software and complementary services, and a free open-source competitor. We examine the firm's choice of business model between the proprietary model (where all software modules are proprietary), the open-source model (where all modules are open source), and the mixed-source model (where some--but not all--modules are open). When a module is opened, users can access and improve the code, which increases quality and value creation. Opened modules, however, are available for others to use free of charge. We derive the set of possibly optimal business models when the modules of the firm and the open-source competitor are compatible (and thus can be combined) and incompatible, and show that (i) when the firm's modules are of high (low) quality, the firm is more open under incompatibility (compatibility) than under compatibility (incompatibility); (ii) firms are more likely to open substitute, rather than complementary, modules to existing open-source projects; and (iii) there may be no trade-off between value creation and value capture when comparing business models with different degrees of openness. This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Ramon Casadesus-Masanell & Gastón Llanes, 2011. "Mixed Source," Management Science, INFORMS, vol. 57(7), pages 1212-1230, July.
  • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:7:p:1212-1230
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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1353
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Eric Darmon & Dominique Torre, 2010. "Open source, dual licensing and software compétition," Post-Print halshs-00497623, HAL.
    2. repec:eee:eecrev:v:94:y:2017:i:c:p:221-239 is not listed on IDEAS
    3. Vineet Kumar & Brett R. Gordon & Kannan Srinivasan, 2011. "Competitive Strategy for Open Source Software," Marketing Science, INFORMS, vol. 30(6), pages 1066-1078, November.
    4. Reisinger, Markus & Ressner, Ludwig & Schmidtke, Richard & Thomes, Tim Paul, 2014. "Crowding-in of complementary contributions to public goods: Firm investment into open source software," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 78-94.
    5. 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, March.
    6. Llanes, Gastón & de Elejalde, Ramiro, 2013. "Industry equilibrium with open-source and proprietary firms," International Journal of Industrial Organization, Elsevier, pages 36-49.
    7. Stefano Colombo & Luca Grilli & Cristina Rossi-Lamastra, 2014. "Network Externalities, Incumbent’s Competitive Advantage and the Degree of Openness of Software Start-Ups," Computational Economics, Springer;Society for Computational Economics, vol. 44(2), pages 175-200, August.
    8. Feng Zhu & Qihong Liu, 2014. "Competing with Complementors: An Empirical Look at Amazon.com," Harvard Business School Working Papers 15-044, Harvard Business School, revised Feb 2016.

    More about this item

    Keywords

    open source; user innovation; business models; complementarity; compatibility; value creation; value capture;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L17 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Open Source Products and Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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