Software Innovation And The Open Source Threat

In this paper the author studies how innovation investment in a software duopoly is affected by the fact that one of the firms is, or might become Open Source. Firms can either be Proprietary Source (PS) or Open Source (OS) or have different initial technological levels. An OS firm is a for profit organization whose basic software is OS and it is distributed for free. The OS firm, however, is able to make profits from selling complementary software and, on the cost side; it receives development help from a community of users.