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Industry Equilibrium with Open Source and Proprietary Firms

  • Gastón Llanes

    ()

    (Harvard Business School, Entrepreneurial Management Unit)

  • Ramiro de Elejalde

    ()

    (Universidad Carlos III de Madrid)

We present a model of industry equilibrium to study the coexistence of Open Source (OS) and Proprietary (P) firms. Two novel aspects of the model are: (1) participation in OS arises as the optimal decision of profit-maximizing firms, and (2) OS and P 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 (like software) and a complementary private good. The only difference between both kinds of firms is that OS share their technological advances on the primary good, while P keep their innovations private. The main contribution of the paper is to determine conditions under which OS and P coexist in equilibrium. Interestingly, this equilibrium is characterized by an asymmetric market structure, with a few large P firms and many small OS firms.

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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-149.

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Length: 47 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:hbs:wpaper:09-0xx
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