Title
When to make proprietary software open source When to make proprietary software open source
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Amsterdam ,
Subject
Economics
Source (journal)
Journal of economic dynamics and control. - Amsterdam
Volume/pages
37(2013) :6 , p. 1182-1194
ISSN
0165-1889
ISI
000317805800006
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
Software can be distributed closed source (proprietary) or open source (developed collaboratively). While a firm cannot sell open source software, and so loses potential sales revenue, the open source software development process can have a substantial positive impact on the quality of a software, its diffusion, and, consequently, the demand for a complementary product from which the firm does profit. Previous papers have considered the firm's option to release software under a closed or open source license as a simple once and for all binary choice. We extend this research by allowing for the possibility of keeping software proprietary for some optimally determined finite time period before making it open source. Furthermore, we study the impact of switching costs. We show that in case of high in-house R&D costs, the firm always makes the software open source at some point (unless switching itself is too expensive). The timing, however, depends on the initial software quality. On the other hand, when R&D is inexpensive, the firm opens the source code only when the initial level of software quality is low. For intermediate R&D costs, the firm might have the choice between opening the code immediately, opening it at some subsequent and optimally determined time, or keeping it closed forever. Finally we find that whereas high switching costs might prevent firms from adopting an open source business model, low switching costs mainly affect the timing of the opening of the source code. (C) 2013 Elsevier B.V. All rights reserved.
E-info
https://repository.uantwerpen.be/docman/iruaauth/e47fb1/ecd4053.pdf
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