Free/Open Source vs Closed Source Software: Public Policies in the Software Market

Abstract:     
This paper analyzes the impact on social welfare of public policies supporting open source software (OSS). The focus of the paper is on desktop applications such as OpenOffice and Linux for desktops. Desktop users can be divided between those who know about the existence of OSS, the informed adopters, and the uninformed ones; the presence of uniformed users leads to market failures that may justify government intervention. We study three policies: i) mandatory adoption, when government forces public agencies, schools and universities to adopt OSS, ii) information campaign, when the government informs the uninformed users about the existence and the characteristics of OSS, and iii) subsidization, when consumers are payed a subsidy when adopting OSS. We show that a part from subsidization policies, which have been proved to harm social surplus, supporting OSS through mandatory adoption and information campaign may have positive welfare effects. When software adoption is affected by strong network effects, mandatory adoption and information campaign induce an increase in social surplus provided that they help the market to tip towards standardization.

Keywords: Software market, open source software, mandatory adoption, information campaign, subsidisation, network externalities

JEL Classifications: O38, L51, L63

Working Paper Series