Competitive Strategy for Open Source Software

42 Pages Posted: 17 Sep 2010 Last revised: 10 Aug 2014

See all articles by Vineet Kumar

Vineet Kumar

Harvard Business School

Brett R. Gordon

Northwestern University - Kellogg School of Management

Kannan Srinivasan

Carnegie Mellon University - David A. Tepper School of Business

Date Written: February 2011

Abstract

Commercial open source software (COSS) products --- privately developed software based on publicly available source code --- represent a rapidly growing, multi-billion-dollar market. A unique aspect of competition in the COSS market is that many open source licenses require firms to make certain enhancements public, creating an incentive for firms to free-ride on the contributions of others. This practice raises a number of puzzling issues. First, why should a firm further develop a product if competitors can freely appropriate these contributions? Second, how does a market based on free-riding produce high-quality products? Third, from a public policy perspective, does the mandatory sharing of enhancements raise or lower consumer surplus and industry profits?

We develop a two-sided model of competition between COSS firms to address these issues. Our model consists of (1) two firms competing in a vertically differentiated market, in which product quality is a mix of public and private components and (2) a market for developers that firms hire after observing signals of their contributions to open source. We demonstrate that free-riding behavior is supported in equilibrium, that a mandatory sharing setting can result in high quality products, and that free-riding can actually increase profits and consumer surplus.

Keywords: Open Source Software, Product Strategy, Signaling, Game Theory

JEL Classification: D02, D43, D82

Suggested Citation

Kumar, Vineet and Gordon, Brett R. and Srinivasan, Kannan, Competitive Strategy for Open Source Software (February 2011). Available at SSRN: https://ssrn.com/abstract=1677937 or http://dx.doi.org/10.2139/ssrn.1677937

Vineet Kumar

Harvard Business School ( email )

Soldiers Field Road
Morgan 179
Boston, MA 02163
United States

Brett R. Gordon (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Kannan Srinivasan

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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