Consumer welfare and market structure in a model of competition between open source and proprietary software

Gaudeul, Alexia (2008): Consumer welfare and market structure in a model of competition between open source and proprietary software.

Abstract

I consider a Vickrey-Salop model of spatial product differentiation with quasi-linear utility functions and contrast two modes of production, the proprietary model where entrepreneurs sell software to the users, and the open source model where users participate in software development. I show that the OS model of production may be more efficient from the point of view of welfare that the proprietary model, but that an OS industry is vulnerable to entry by entrepreneurs while a proprietary industry can resist entry by OS projects. A mixed industry where OS and proprietary development methods coexist may exhibit large OS projects cohabiting with more specialized proprietary projects, and is more efficient than the proprietary model of production from the point of view of welfare.

• Item Type: MPRA Paper
• Language: English
• Keywords: open source; proprietary; software industry; copyright; non-profit organization; mixed market; welfare; spatial product differentiation
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L17 - Open Source Products and Markets; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; H - Public Economics > H4 - Publicly Provided Goods > H44 - Publicly Provided Goods: Mixed Markets

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