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The Impact of Entry and Competition by Open Source Software on Innovation Activity


  • Jürgen Bitzer

    (Free University Berlin)

  • Philipp J.H. Schröder

    (Aarhus School of Business)


This paper presents the stylized facts of open source software innovation and provides empirical evidence on the impact of increased competition by OSS on the innovative activity in the software industry. Furthermore, we introduce a simple formal model that captures the innovation impact of OSS entry by examining a change in market structure from monopoly to duopoly under the assumption that software producers compete in technology rather than price or quantities. The paper identifies a pro-innovative effect of OSS competition.

Suggested Citation

  • Jürgen Bitzer & Philipp J.H. Schröder, 2005. "The Impact of Entry and Competition by Open Source Software on Innovation Activity," Industrial Organization 0512001, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0512001
    Note: Type of Document - pdf; pages: 38

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    References listed on IDEAS

    1. Franke, Nikolaus & Hippel, Eric von, 2003. "Satisfying heterogeneous user needs via innovation toolkits: the case of Apache security software," Research Policy, Elsevier, vol. 32(7), pages 1199-1215, July.
    2. Lerner, Josh & Tirole, Jean, 2002. "Some Simple Economics of Open," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 197-234, June.
    3. Bresnahan, Timothy F & Greenstein, Shane, 1999. "Technological Competition and the Structure of the Computer Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 1-40, March.
    4. Bitzer, Jurgen & Schrettl, Wolfram & Schroder, Philipp J.H., 2007. "Intrinsic motivation in open source software development," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 160-169, March.
    5. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    6. 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.
    7. Hertel, Guido & Niedner, Sven & Herrmann, Stefanie, 2003. "Motivation of software developers in Open Source projects: an Internet-based survey of contributors to the Linux kernel," Research Policy, Elsevier, vol. 32(7), pages 1159-1177, July.
    8. Bitzer, Jurgen & Schroder, Philipp J.H., 2005. "Bug-fixing and code-writing: The private provision of open source software," Information Economics and Policy, Elsevier, vol. 17(3), pages 389-406, July.
    9. O'Mahoney, Siobhán & Ferraro, Fabrizio, 2004. "Managing the boundary of an 'open' project," IESE Research Papers D/537, IESE Business School.
    10. 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.
    11. Franke, Nikolaus & Shah, Sonali, 2003. "How communities support innovative activities: an exploration of assistance and sharing among end-users," Research Policy, Elsevier, vol. 32(1), pages 157-178, January.
    12. Ulrich, Karl, 1995. "The role of product architecture in the manufacturing firm," Research Policy, Elsevier, vol. 24(3), pages 419-440, May.
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    Cited by:

    1. Bitzer, Jürgen & Geishecker, Ingo, 2010. "Who contributes voluntarily to OSS? An investigation among German IT employees," Research Policy, Elsevier, vol. 39(1), pages 165-172, February.
    2. 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.
    3. 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.
    4. Bitzer, Jürgen & Schrettl, Wolfram & Schröder, Philipp J.H., 2006. "Intrinsic Motivation versus Signaling in Open Source Software Development," Working Papers 06-7, University of Aarhus, Aarhus School of Business, Department of Economics.
    5. German Lambardi, 2009. "Software Innovation and the Open Source threat," Working Papers 09-15, NET Institute, revised Sep 2009.

    More about this item


    open source software; innovation; strategic interaction;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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