Software Innovation and the Open Source threat
In this paper I study how innovation investment in a software duopoly isaffected by the fact that one of the firms is, or might become OpenSource. Firms can either be proprietary source (PS) or open source (OS)and have different initial technological levels. An OS firm is a forprofit organization whose basic software is OS and it is distributed forfree. The OS firm, however, is able to make profits from sellingcomplementary software and, on the cost side, it receives developmenthelp from a community of users. I first compare a duopoly composed bytwo PS firms with a mixed duopoly of a PS and OS firm and I find that aPS duopoly might generate more innovation than a mixed duopoly if theinitial technological gap between firms is small. However if this gap islarge, a PS duopoly generates less innovation than a mixed duopoly. Ithen extend the setting to allow PS firms to switch to OS or to remainPS. A PS firm wants to become OS if it gets behind enough in thetechnological race against a competitor. I find that the outside optionto become OS might soften competition on innovation since thetechnological leader prefers to reduce his innovation investment toavoid the OS switch of the follower. Therefore, although the switch toOS could generate higher investment levels ex-post it might generatelower investment ex-ante. In this context I nd that a governmentsubsidy to OS firms could be potentially harmful for innovation.
|Year of publication:||
|Authors:||Lambardi, German Daniel|
|Institutions:||GREMAQ, Toulouse School of Economics|
|Type of publication:||Other|
Net Institute Working Paper;09-15
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