Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows
43 Pages Posted: 4 Sep 2003
Date Written: September 2003
This paper analyzes a dynamic mixed duopoly in which a profit-maximizing competitor interacts with a competitor that prices at zero (or marginal cost), with the cumulation of output affecting their relative positions over time. The modeling effort is motivated by interactions between Linux, an open-source operating system, and Microsoft's Windows in the computer server segment, and consequently emphasizes demand-side learning effects that generate dynamic scale economies (or network externalities). Analytical characterizations of the equilibrium under such conditions are offered, and some comparative static and welfare effects are examined.
Keywords: Open-source, free software, network effects, mixed duopoly, competitive dynamics, demand-side learning, Linux, Windows, Microsoft
JEL Classification: L1, L2, L3, L86
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