Abstract
We use a Hotelling linear city model to study competition between open source and proprietary software, where only the producer of the proprietary software aims at maximizing the profit. The producer of the proprietary software must decide on compatibility. Different compatibility strategies will lead to different network externality, and thus result in different profit for the producer of the proprietary software. We found that the proprietary producer's choice of compatibility strategy depends on the market coverage conditions. When the market is fully covered, one-way compatibility is the best strategy for the proprietary software. When the market is partly covered, two-way compatibility is the best strategy. Such results are not affected by software quality. Furthermore, when the provider of the open source software pursues the maximum market share rather than reacts passively, two-way compatibility would be the best choice for both the open source and the proprietary software. Moreover, the proprietary software producer does not favor its proprietary rival changing to open source software. Such a change may lower the social welfare.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
