Open Source Software as Consumer Integration into Production

Abstract

Open source software is emerging as a potentially important competitive force in the software industry, capturing the attention of venture capitalists and computing industry executives. Yet very little is known about how open source software, which is created collectively by individual volunteers, will compete with closed source software. This paper models open source software as consumer integration into production, in which users organize to produce a good for themselves. The model predicts that open source software will not compete in all product markets, but where it does, will be of higher quality than closed source software. An empirical study finds support for these predictions.

Keywords: software, open source software, nonprofit, vertical integration, R&D productivity

JEL Classification: D21, D71, H41, L15, L2, L31, L86