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Dynamic mixed duopoly: A model motivated by Linux vs. Windows

  • Casadesus-Masanell, Ramon


    (IESE Business School)

  • Ghemawat, Pankaj


    (Harvard Business School)

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    This paper analyzes a dynamic mixed duopoly in which a profit-maximizing competitor interacts with a competitor that prices at zero (or marginal cost), with the cumulation of output affecting their relative positions over time. The modeling effort is motivated by interactions between Linux, an open-source operating system, and Microsoft's Windows in the computer server segment, and consequently emphasizes demand-side learning effects that generate dynamic scale economies (or network externalities). Analytical characterizations of the equilibrium under such conditions are offered, and some comparative static and welfare effects are examined.

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    Paper provided by IESE Business School in its series IESE Research Papers with number D/519.

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    Length: 40 pages
    Date of creation: 23 Sep 2003
    Date of revision:
    Handle: RePEc:ebg:iesewp:d-0519
    Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
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    1. Lerner, Josh & Tirole, Jean, 2002. "Some Simple Economics of Open," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 197-234, June.
    2. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
    3. 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.
    4. Bruce Kogut & Anca Metiu, 2001. "Open-Source Software Development and Distributed Innovation," Oxford Review of Economic Policy, Oxford University Press, vol. 17(2), pages 248-264, Summer.
    5. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
    7. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers 385, Massachusetts Institute of Technology (MIT), Department of Economics.
    8. Jürgen Bitzer & Philipp J. H. Schröder, 2002. "Bug-Fixing and Code-Writing: The Private Provision of Open Source Software," Discussion Papers of DIW Berlin 296, DIW Berlin, German Institute for Economic Research.
    9. Dalle, Jean-Michel & Jullien, Nicolas, 2003. "'Libre' software: turning fads into institutions?," Research Policy, Elsevier, vol. 32(1), pages 1-11, January.
    10. Ross, David R, 1986. "Learning to Dominate," Journal of Industrial Economics, Wiley Blackwell, vol. 34(4), pages 337-53, June.
    11. 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.
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