Abstract

This paper analyzes the impact of network externalities on the competition between open source software (OSS) and proprietary software (PS) in a fully covered market. The installed base and the profit of proprietary software are found increasing at the expense of decreasing user base for OSS. Furthermore, we find that a threshold corresponding to the quality ratio between OSS and proprietary software can be derived such that if the network effect intensity of the OSS is greater than that of the proprietary software multiplied by this threshold value, then OSS benefits from the presence of network externality; Finally, we find that making software products compatible with competing rival is not desirable by proprietary software vendors but favored by OSS venders.

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