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Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market

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  • Schmidt, Klaus M.
  • Schnitzer, Monika

Abstract

This Paper discusses the economic merits of direct or indirect governmental support for open source projects. Software markets differ from standard textbook markets in three important respects that may give rise to market failures: (i) large economies of scale, (ii) crucially important innovations, (iii) significant network effects and switching costs. We analyse the differences between proprietary software and open source software with respect to these market features and ask whether open source as an alternative to proprietary software can mitigate these problems. Then we discuss the implications of various forms of governmental support for open source.

Suggested Citation

  • 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.
  • Handle: RePEc:cpr:ceprdp:3793
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Schmidtke, Richard, 2006. "Private Provision of a Complementary Public Good," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 134, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Kristian Koerselman, 2008. "Can open sourcing lead to inferior standards?," Discussion Papers 27, Aboa Centre for Economics.
    3. Michiel Bijlsma & Paul de Bijl & Viktoria Kocsis, 2009. "Concurrentie, innovatie en intellectuele eigendomsrechten in software markten," CPB Document 181, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Richard Schmidtke, 2006. "Private Provision of a Complementary Public Good," CESifo Working Paper Series 1756, CESifo Group Munich.
    5. Stefano Comino & Fabio M. Manenti, 2003. "Open Source vs Closed Source Software: Public Policies in the Software Market," Industrial Organization 0306001, EconWPA.
    6. Thomas Le Texier & Mourad Zeroukhi, 2015. "How Can Proprietary Software Firms Take Advantage Over Open Source Communities? Another Story of Pro fitable Piracy," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201503, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    7. 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.
    8. Stephen M. Maurer & Suzanne Scotchmer, 2006. "Open Source Software: The New Intellectual Property Paradigm," NBER Working Papers 12148, National Bureau of Economic Research, Inc.
    9. Mourad Zeroukhi & Thierry Pénard, 2014. "Open source software subsidies and network compatibility in a mixed duopoly," Economics Bulletin, AccessEcon, vol. 34(2), pages 1174-1184.
    10. Luigi Di Gaetano, 2015. "A Model of corporate donations to open source under hardware–software complementarity," Industrial and Corporate Change, Oxford University Press, vol. 24(1), pages 163-190.
    11. 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.
    12. Schmidtke, Richard, 2006. "Private Provision of a Complementary Public Good," Discussion Papers in Economics 964, University of Munich, Department of Economics.
    13. Riccardo Leoncini & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2008. "You Won the Battle. What about the War? A Model of Competition between Proprietary and Open Source Software," Department of Economics Working Papers 0811, Department of Economics, University of Trento, Italia.
    14. Alexia Gaudeul, 2009. "Consumer Welfare and Market Structure in a Model of Competition between Open Source and Proprietary Software," International Journal of Open Source Software and Processes (IJOSSP), IGI Global, vol. 1(2), pages 43-65, April.
    15. Johnson, Justin P., 2006. "Collaboration, peer review and open source software," Information Economics and Policy, Elsevier, vol. 18(4), pages 477-497, November.
    16. Bitzer, Jurgen, 2004. "Commercial versus open source software: the role of product heterogeneity in competition," Economic Systems, Elsevier, vol. 28(4), pages 369-381, December.
    17. Casadesus-Masanell, Ramon & Ghemawat, Pankaj, 2003. "Dynamic mixed duopoly: A model motivated by Linux vs. Windows," IESE Research Papers D/519, IESE Business School.
    18. Gaudeul, Alexia, 2008. "Open Source Licensing in Mixed Markets, or Why Open Source Software Does Not Succeed," MPRA Paper 19596, University Library of Munich, Germany.
    19. Marina Doroshenko & Kirill Skripkin, 2013. "Developing the National Software Market: Public Policy Alternatives," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 7(1), pages 44-57.
    20. Maria Alessandra Rossi, 2004. "Decoding the "Free/Open Source(F/OSS) Software Puzzle" a survey of theoretical and empirical contributions," Department of Economics University of Siena 424, Department of Economics, University of Siena.
    21. Thorsten Wichmann & Pio Baake, 2003. "Open Source Software, Competition and Potential Entry," Berlecon Research Papers 0005, Berlecon Research.
    22. Marcel Boyer & Jacques Robert, 2006. "The Economics of Free and Open Source Software: Contributions to a Government Policy on Open Source Software," CIRANO Project Reports 2006rp-03, CIRANO.
    23. Lanzi, Diego, 2009. "Competition and open source with perfect software compatibility," Information Economics and Policy, Elsevier, vol. 21(3), pages 192-200, August.

    More about this item

    Keywords

    innovation incentives; open source; public goods; public subsidies; software market;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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