Abstract
Despite the availability of source code, deploying open source software (OSS) in an enterprise environment requires expertise. Recent surveys show that the skills of IT staff in an organization are one of the key factors in OSS adoption decisions. This paper develops a model where users choosing between proprietary software and OSS are heterogeneous in their expertise. The paper finds that as users become more skilled in OSS, the price of proprietary software will decline. Second, the equilibrium market structure is influenced by both users’ expertise and network effects. It is not surprising that proprietary software can drive OSS out of the market in presence of network effect, but counter-intuitively, this happens when users are highly skilled in OSS. Third, in presence of network effect, OSS may survive in the market only when it is customizable by skilled users and therefore provides significant higher benefits to users than proprietary software.
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