TITLE:
A Dynamic Model of Mixed Duopolistic Competition: Open Source vs. Proprietary Innovation
AUTHORS:
Suat Akbulut, Murat Yılmaz
KEYWORDS:
Open Source Innovation, GPL, Research and Development, Dynamic Games
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.6,
December
23,
2015
ABSTRACT: We model the competition between a proprietary firm and an open source
rival, by incorporating the nature of the GPL, investment opportunities by the
proprietary firm, user-developers who can invest in the open source
development, and a ladder type technology. We use a two-period dynamic mixed
duopoly model, in which a profit-maximizing proprietary firm competes with a
rival, the open source firm, which prices the product at zero, with the quality
levels determining their relative positions over time. We analyze how the
existence of open source firm affects the investment and the pricing behavior
of the proprietary firm. We also study the welfare implications of the
existence of the open source rival. We find that, under some conditions, the
existence of an open source rival may decrease the total welfare.