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Consumer Welfare and Market Structure in a Model of Competition Between Open Source and Proprietary Software

  • Alexia Gaudeul

    ()

    (Centre for Competition Policy, University of East Anglia)

I consider a Vickrey-Salop model of spatial product differentiation with quasi-linear utility functions and contrast two modes of production, the proprietary model where entrepreneurs sell software to the users, and the open source model where users participate in software development. I show that the OS model of production may be more efficient from the point of view of welfare that the proprietary model, but that an OS industry is vulnerable to entry by entrepreneurs while a proprietary industry can resist entry by OS projects. A mixed industry where OS and proprietary development methods coexist may exhibit large OS projects cohabiting with more specialized proprietary projects, and is more efficient than the proprietary model of production from the point of view of welfare.

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File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP08-31.pdf
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Paper provided by Centre for Competition Policy, University of East Anglia in its series Working Papers with number 08-31.

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Length: 31 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:ccp:wpaper:wp08-31
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  24. Gaudeul Alex, 2007. "Do Open Source Developers Respond to Competition? The LATEX Case Study," Review of Network Economics, De Gruyter, vol. 6(2), pages 1-25, June.
  25. 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.
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