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Open Source Software, Competition and Potential Entry

Author

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  • Thorsten Wichmann

    (Berlecon Research)

  • Pio Baake

    (ifo Institute for Economic Research)

Abstract

We analyze a model with two software firms, quality improving coding expenditures and potential competition. The firms can publish parts of their software as open source. Publishing software implies positive spillovers and thus reduces the firms' coding costs. On the other hand there exist two negative effects. First, lower coding costs induce higher coding expenditures which decreases the firms' profits if their programs are substitutes. Second, open source encourages entry and increases the expenditures required to deter entry. The firms' optimal open source decisions balance these opposite effects.

Suggested Citation

  • Thorsten Wichmann & Pio Baake, 2003. "Open Source Software, Competition and Potential Entry," Berlecon Research Papers 0005, Berlecon Research.
    • Handle: RePEc:ber:bertw1:0005
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    File URL: http://www.berlecon.de/tw/osscompetition.pdf
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    References listed on IDEAS

    as
    1. Josh Lerner, 2005. "The Scope of Open Source Licensing," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 21(1), pages 20-56, April.
    2. Josh Lerner & Jean Tirole, 2002. "Some Simple Economics of Open Source," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 197-234, June.
    3. Saint-Paul, Gilles, 2003. "Cumulative Innovation and Information Sharing in Business Networks," IDEI Working Papers 225, Institut d'Économie Industrielle (IDEI), Toulouse.
    4. Schmidt, Klaus & 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.
    5. Kamien, Morton I. & Zang, Israel, 2000. "Meet me halfway: research joint ventures and absorptive capacity," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 995-1012, October.
    6. Saint-Paul, Gilles, 2003. "Information Sharing and Cumulative Innovation in Business Networks," CEPR Discussion Papers 4116, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Engelhardt, Sebastian v. & Freytag, Andreas, 2013. "Institutions, culture, and open source," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 90-110.
    2. 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.
    3. Sebastian von Engelhardt, 2010. "Quality Competition or Quality Cooperation? License-Type and the Strategic Nature of Open Source vs. Closed Source Business Models," Jena Economics Research Papers 2010-034, Friedrich-Schiller-University Jena.
    4. Alexandre Gaudeul, 2004. "Competition between open-source and proprietary software: the (La)TeX case study," Industrial Organization 0409007, University Library of Munich, Germany.

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    Keywords

    Open Source; Spillovers; Potential Entry;
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