Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Research identifies benefits of the open source software market

17.08.2011
Model identifies social-welfare benefits and how quality products result from open source software, despite the existence of free-riding

A forthcoming paper in Marketing Science (http://mktsci.journal.informs.org/ ) by Columbia Business School Class of 1967 Associate Professor of Business, Brett Gordon, in collaboration with Vineet Kumar, Assistant Professor of Business Administration at Harvard Business School, and Kannan Srinivasan, Heinz College Professor of Management, Marketing and Information Systems at the Tepper School of Business at Carnegie Mellon University, finds that commercial open source software (COSS) results in high-quality products, and that despite the free-riding that is inherent in the industry due to information-sharing, the market creates spillover benefits for both consumers and producers. The study features a two-sided model of competition between commercial open source software (COSS) firms, which allows the research to determine the benefits of COSS.

Commercial open source software (COSS) products, which are privately developed software based on publicly available source code, represent a rapidly growing, multi-billion dollar market. A unique aspect of the COSS market is that many open source licenses require firms to make certain enhancements public, creating an incentive for firms to free-ride on the contributions of others. In order to study the efficiency of COSS firms, the researchers created a model that consisted of two firms, a high-quality and a low-quality firm, competing in a vertically differentiated market, in which product quality is a mix of public and private components and a market for developers that firms hire after observing signals of their contributions to open source. The study's model has two interacting markets: a product market consisting of COSS firms that sell software products to consumers, and a developer market where firms hire developers to create software products.

The model aimed to rationalize several puzzles observed in the industry, such as why Red Hat, a high-quality firm, contributes significantly more to Linux than any other firm and why a market with mandatory sharing can actually produce higher-quality products than a proprietary market.

Through their analysis, the professors found that in the shared features market, the high-quality firm creates additional open source features, whereas the low quality firm does not. Both firms also develop some degree of usability. The high-quality firm contributes to open source because the complementary nature of features and usability increases the value of differentiating on usability, and both firms appropriate the benefits from quality differentiation. As expected, the low-quality firm does not have as many incentives to contribute features, because the low-quality firm can free-ride on the high-quality firm and its marginal value of additional features is lower. Furthermore, diminished competition between firms in the developer market explains the higher quality present in the shared features market, in conjunction with production efficiencies created by mandatory sharing. In terms of overall social welfare, both consumers and the low quality firm are unambiguously better off. Consumer surplus is higher with free-riding because of increased price competition resulting from reduced product differentiation, given the sharing of common features.

Prof. Brett Gordon explains the relevance of the study, "Open source is becoming applicable to more industries – for example, open source has recently made the leap to mobile computing platforms with the release of the Google Android operating system. Overall, we expect the open source market to continue to attract attention, given its impact on product design, pricing, and firm strategy."

About Columbia Business School

Led by Dean Glenn Hubbard, the Russell L. Carson Professor of Finance and Economics, Columbia Business School is at the forefront of management education for a rapidly changing world. The school's cutting–edge curriculum bridges academic theory and practice, equipping students with an entrepreneurial mindset to recognize and capture opportunity in a competitive business environment. Beyond academic rigor and teaching excellence, the school offers programs that are designed to give students practical experience making decisions in real–world environments. The school offers MBA and Executive MBA (EMBA) degrees, as well as non–degree Executive Education programs. For more information, visit www.gsb.columbia.edu.

Sona Rai | EurekAlert!
Further information:
http://www.columbia.edu

More articles from Studies and Analyses:

nachricht The importance of biodiversity in forests could increase due to climate change
17.11.2017 | Deutsches Zentrum für integrative Biodiversitätsforschung (iDiv) Halle-Jena-Leipzig

nachricht Win-win strategies for climate and food security
02.10.2017 | International Institute for Applied Systems Analysis (IIASA)

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Frictional Heat Powers Hydrothermal Activity on Enceladus

Computer simulation shows how the icy moon heats water in a porous rock core

Heat from the friction of rocks caused by tidal forces could be the “engine” for the hydrothermal activity on Saturn's moon Enceladus. This presupposes that...

Im Focus: Nanoparticles help with malaria diagnosis – new rapid test in development

The WHO reports an estimated 429,000 malaria deaths each year. The disease mostly affects tropical and subtropical regions and in particular the African continent. The Fraunhofer Institute for Silicate Research ISC teamed up with the Fraunhofer Institute for Molecular Biology and Applied Ecology IME and the Institute of Tropical Medicine at the University of Tübingen for a new test method to detect malaria parasites in blood. The idea of the research project “NanoFRET” is to develop a highly sensitive and reliable rapid diagnostic test so that patient treatment can begin as early as possible.

Malaria is caused by parasites transmitted by mosquito bite. The most dangerous form of malaria is malaria tropica. Left untreated, it is fatal in most cases....

Im Focus: A “cosmic snake” reveals the structure of remote galaxies

The formation of stars in distant galaxies is still largely unexplored. For the first time, astron-omers at the University of Geneva have now been able to closely observe a star system six billion light-years away. In doing so, they are confirming earlier simulations made by the University of Zurich. One special effect is made possible by the multiple reflections of images that run through the cosmos like a snake.

Today, astronomers have a pretty accurate idea of how stars were formed in the recent cosmic past. But do these laws also apply to older galaxies? For around a...

Im Focus: Visual intelligence is not the same as IQ

Just because someone is smart and well-motivated doesn't mean he or she can learn the visual skills needed to excel at tasks like matching fingerprints, interpreting medical X-rays, keeping track of aircraft on radar displays or forensic face matching.

That is the implication of a new study which shows for the first time that there is a broad range of differences in people's visual ability and that these...

Im Focus: Novel Nano-CT device creates high-resolution 3D-X-rays of tiny velvet worm legs

Computer Tomography (CT) is a standard procedure in hospitals, but so far, the technology has not been suitable for imaging extremely small objects. In PNAS, a team from the Technical University of Munich (TUM) describes a Nano-CT device that creates three-dimensional x-ray images at resolutions up to 100 nanometers. The first test application: Together with colleagues from the University of Kassel and Helmholtz-Zentrum Geesthacht the researchers analyzed the locomotory system of a velvet worm.

During a CT analysis, the object under investigation is x-rayed and a detector measures the respective amount of radiation absorbed from various angles....

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Ecology Across Borders: International conference brings together 1,500 ecologists

15.11.2017 | Event News

Road into laboratory: Users discuss biaxial fatigue-testing for car and truck wheel

15.11.2017 | Event News

#Berlin5GWeek: The right network for Industry 4.0

30.10.2017 | Event News

 
Latest News

Underwater acoustic localization of marine mammals and vehicles

23.11.2017 | Information Technology

Enhancing the quantum sensing capabilities of diamond

23.11.2017 | Physics and Astronomy

Meadows beat out shrubs when it comes to storing carbon

23.11.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>