The Impact of Network Externalities on the Competition Between Open Source and Proprietary Software

In this paper, we build analytical models to examine the impact of network externalities on the competition between open source software (OSS) and proprietary software. We investigate the competing OSS and proprietary software products with comparable functionalities in four different scenarios depe...

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Bibliographic Details
Published in:Journal of management information systems Vol. 27; no. 4; pp. 201 - 230
Main Authors: Cheng, Hsing Kenneth, Liu, Yipeng, Tang, Qian (Candy)
Format: Journal Article
Language:English
Published: Abingdon Routledge 01.04.2011
M. E. Sharpe
Sharpe
Taylor & Francis Ltd
Subjects:
Compatibility
Competition
Computer software
Consumers
Copyright
Economic competition
Externalities
Externality
Financial incentives
Imbalance
Information storage and retrieval systems
Market share
Markets
Modelling
Network access lines
Network analysis
Network effects
network externalities
Networks
Netzwerkökonomik
Open competition
Open Source
Open source software
Prices
Product development
Property
Proprietary
Rivalry
Software
software compatibility
Studies
Unternehmenssoftware
Vendors
Vergleich
ISSN:0742-1222, 1557-928X
Online Access:Get full text
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Summary:In this paper, we build analytical models to examine the impact of network externalities on the competition between open source software (OSS) and proprietary software. We investigate the competing OSS and proprietary software products with comparable functionalities in four different scenarios depending on whether they are compatible with each other and whether the underlying market is fully covered (i.e., all consumers adopt one of the two products). Furthermore, we study which party has the most incentive to make its product compatible with its counterpart. When the market is fully covered, the installed base and the profit of proprietary software increase at the expense of a decreasing user base for OSS in the presence of network externalities. This competitive imbalance becomes more pronounced when OSS and proprietary software are incompatible and the market is partially covered. Finally, we find that in the presence of network externalities, being compatible with its rival is not desirable for the proprietary software, but highly beneficial to the OSS community.
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ISSN:0742-1222
1557-928X
DOI:10.2753/MIS0742-1222270407