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Mixed Source

59 Pages Posted: 22 Sep 2009  

Ramon Casadesus-Masanell

Harvard University - Strategy Unit

Gastón Llanes

Pontificia Universidad Católica de Chile

Date Written: September 16, 2009

Abstract

We study competitive interaction between profit-maximizing firms that sell software and complementary goods or services. In addition to tactical price competition, we allow firms to compete through business model reconfigurations. We consider three business models: the proprietary model (where all software modules offered by the firm are proprietary), the open source model (where all modules are open source), and the mixed source model (where a few modules are open). When a firm opens one of its modules, users can access and improve the source code. At the same time, however, opening a module sets up an open source (free) competitor. This hampers the firm's ability to capture value. We analyze three competitive situations: monopoly, commercial firm vs. non-profit open source project, and duopoly. We show that: (i) firms may become "more closed" in response to competition from an outside open source project; (ii) firms are more likely to open substitute, rather than complementary, modules to existing open source projects; (iii) when the products of two competing firms are similar in quality, firms differentiate through choosing different business models; and (iv) low-quality firms are generally more prone to opening some of their technologies than firms with high-quality products.

Keywords: Open Source, User Innovation, Business Models, Complementarity, Vertical Di erentiation, Value Creation, Value Capture

JEL Classification: O31, L17, D43

Suggested Citation

Casadesus-Masanell, Ramon and Llanes, Gastón, Mixed Source (September 16, 2009). NET Institute Working Paper No. 09-06. Available at SSRN: https://ssrn.com/abstract=1474994 or http://dx.doi.org/10.2139/ssrn.1474994

Ramon Casadesus-Masanell (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
617-496-0176 (Phone)
617-496-5859 (Fax)

HOME PAGE: http://www.people.hbs.edu/rmasanell

Gaston Llanes

Pontificia Universidad Católica de Chile ( email )

Vicuna Mackenna 4860
Santiago
Chile

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