Abstract
In recent years there has been an increasing diffusion of open source projects as well as an increasing interest among scholars on the topic. Open source software (OSS) is developed by communities of programmers and users, usually sponsored by private firms, is available in the public domain and redistributed for free. We present a model of open and closed source software competition in a differentiated oligopoly of hardware�software bundles. Hardware and software are complement goods and OSS is financed by hardware firms. Results are several. Hardware firms contribute to the development of open source, although the level of contribution is not socially optimal. OSS availability has a positive impact on hardware firms� profits and prices, whereas the closed source producer is harmed by OSS competition. Furthermore, we analyze under what circumstances hardware firms have incentives in investing in OS projects. The model can explain the increasing participation in OS projects of several embedded device producers and server producers. Although we focus on hardware, this model can be generalized to a wide range of complementary goods and services, such as IT training, web hosting, and Information and Communication Technology (ICT) consultancy services.
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