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Mixed Source

We study competitive interaction between profit-maximizing firms that sell software and complementary goods or services. In addition to tactical price competition, we allow firms to compete through business model reconfigurations. We consider three business models: the proprietary model (where all software modules offered by the firm are proprietary), the open source model (where all modules are open source), and the mixed source model (where a few modules are open). When a firm opens one of its modules, users can access and improve the source code. At the same time, however, opening a module sets up an open source (free) competitor. This hampers the firm's ability to capture value. We analyze three competitive situations: monopoly, commercial firm vs. non-profit open source project, and duopoly. We show that: (i) firms may become "more closed" in response to competition from an outside open source project; (ii) firms are more likely to open substitute, rather than complementary, modules to existing open source projects; (iii) when the products of two competing firms are similar in quality, firms differentiate through choosing different business models; and (iv) low-quality firms are generally more prone to opening some of their technologies than firms with high-quality products.

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File URL: http://www.netinst.org/Casadesus-Masanell_Llanes_09-06.pdf
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Paper provided by NET Institute in its series Working Papers with number 09-06.

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Length: 58 pages
Date of creation: Sep 2009
Date of revision: Sep 2009
Handle: RePEc:net:wpaper:0906
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Lerner, Josh & Tirole, Jean, 2001. "The open source movement: Key research questions," European Economic Review, Elsevier, vol. 45(4-6), pages 819-826, May.
  2. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  3. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  4. Henkel, Joachim, 2004. "The Jukebox Mode of Innovation - A Model of Commercial Open Source Development," CEPR Discussion Papers 4507, C.E.P.R. Discussion Papers.
  5. Gastón Llanes & Ramiro de Elejalde, 2009. "Industry Equilibrium with Open Source and Proprietary Firms," Harvard Business School Working Papers 09-149, Harvard Business School.
  6. Nicholas Economides & Evangelos Katsamakas, 2005. "Two-sided competition of proprietary vs. open source technology platforms, and the implications for the software industry," Working Papers 05-02, NET Institute, revised Oct 2005.
  7. Josh Lerner & Jean Tirole, 2004. "The Economics of Technology Sharing: Open Source and Beyond," NBER Working Papers 10956, National Bureau of Economic Research, Inc.
  8. Sonali K. Shah, 2006. "Motivation, Governance, and the Viability of Hybrid Forms in Open Source Software Development," Management Science, INFORMS, vol. 52(7), pages 1000-1014, July.
  9. Glenn MacDonald & Michael D. Ryall, 2004. "How Do Value Creation and Competition Determine Whether a Firm Appropriates Value?," Management Science, INFORMS, vol. 50(10), pages 1319-1333, October.
  10. Mustonen, Mikko, 2003. "Copyleft--the economics of Linux and other open source software," Information Economics and Policy, Elsevier, vol. 15(1), pages 99-121, March.
  11. Ramon Casadesus-Masanell & Pankaj Ghemawat, 2006. "Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows," Management Science, INFORMS, vol. 52(7), pages 1072-1084, July.
  12. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  13. Georg von Krogh & Eric von Hippel, 2006. "The Promise of Research on Open Source Software," Management Science, INFORMS, vol. 52(7), pages 975-983, July.
  14. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  15. Andrea Bonaccorsi & Silvia Giannangeli & Cristina Rossi, 2006. "Entry Strategies Under Competing Standards: Hybrid Business Models in the Open Source Software Industry," Management Science, INFORMS, vol. 52(7), pages 1085-1098, July.
  16. Carliss Y. Baldwin & Kim B. Clark, 2006. "The Architecture of Participation: Does Code Architecture Mitigate Free Riding in the Open Source Development Model?," Management Science, INFORMS, vol. 52(7), pages 1116-1127, July.
  17. 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.
  18. Ramon Casadesus-Masanell & Andres Hervas-Drane, 2010. "Peer-to-Peer File Sharing and the Market for Digital Information Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 333-373, 06.
  19. Keith M. Chen & Barry Nalebuff, 2006. "One-Way Essential Complements," Levine's Bibliography 321307000000000669, UCLA Department of Economics.
  20. Ramon Casadesus-Masanell & David B. Yoffie, 2007. "Wintel: Cooperation and Conflict," Management Science, INFORMS, vol. 53(4), pages 584-598, April.
  21. Richard P. Bagozzi & Utpal M. Dholakia, 2006. "Open Source Software User Communities: A Study of Participation in Linux User Groups," Management Science, INFORMS, vol. 52(7), pages 1099-1115, July.
  22. Sebastian von Engelhardt, 2010. "Quality Competition or Quality Cooperation? License-Type and the Strategic Nature of Open Source vs. Closed Source Business Models," Jena Economic Research Papers 2010-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  23. Adam M. Brandenburger & Harborne W. Stuart, 1996. "Value-based Business Strategy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(1), pages 5-24, 03.
  24. Chen, M. Keith & Nalebuff, Barry, 2006. "One-Way Essential Complements," Working Papers 22, Yale University, Department of Economics.
  25. Adam Brandenburger & Harborne Stuart, 2007. "Biform Games," Management Science, INFORMS, vol. 53(4), pages 537-549, April.
  26. Jeffrey A. Roberts & Il-Horn Hann & Sandra A. Slaughter, 2006. "Understanding the Motivations, Participation, and Performance of Open Source Software Developers: A Longitudinal Study of the Apache Projects," Management Science, INFORMS, vol. 52(7), pages 984-999, July.
  27. Alexandre Gaudeul, 2004. "Competition between open-source and proprietary software: the (La)TeX case study," Industrial Organization 0409007, EconWPA.
  28. Ramon Casadesus-Masanell & Feng Zhu, 2010. "Strategies to Fight Ad-Sponsored Rivals," Management Science, INFORMS, vol. 56(9), pages 1484-1499, September.
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