The economics of open source software for a competitive firm

Why give it away for free?


Large quantities of software, ranging from operating systems to web servers to games, are now available as “open source software” or “free software”. In many cases, this software is backed by large profit seeking corporations such as IBM. Traditional economic analysis is used to identify the costs and benefits to firms of using open source rather than proprietary solutions, particularly in the case of the firm releasing code to the world when not obliged to do so. Examples of large companies backing open source are examined in light of the profit motive. Additionally, open source is also analyzed as a quasi-public good.


competitive firm free software game theory open source software public good 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. [1]
    R. Buckman, Microsoft net rose 12% in quarter-profit, revenue forecasts are reduced amid weakness in PC, software markets, Wall Street Journal (19 April 2002) A3. Google Scholar
  2. [2]
    Corel’s contributions to the Wine project, Linux Today (23 June 1999). Google Scholar
  3. [3]
    Debian open source definition,
  4. [4]
    Debian social contract,
  5. [5]
    N. Franke and E. von Hippel, Satisfying heterogeneous user needs via innovation toolkits: The case of Apache security software, MIT Sloan School of Management, Working Paper #4341-02. Google Scholar
  6. [6]
    General Public License,
  7. [7]
    L. Gomes, More big technology firms embrace broad use of Linux operating system, Wall Street Journal (13 May 1999) B4. Google Scholar
  8. [8]
    D. Harhoff, J. Henkel and E. von Hippel, Profiting from voluntary information spillovers: How users benefit by freely revealing their innovations?, Research Policy 32 (December 2003) 1753–1769. Google Scholar
  9. [9]
  10. [10]
  11. [11]
  12. [12] (September 2002).
  13. [13]
  14. [14]
    J.P. Johnson, Open source software: Private provision of a public good, J. Economics Managm. Strategy 11(4) 637–662. Google Scholar
  15. [15]
    A. Khalak, Economic model for impact of open source software, Department of Mech. Engineering, MIT,
  16. [16]
    X. Lecocq and B. Demil, Open standard: Role of externalities and impact on the industry structure, Working paper. Google Scholar
  17. [17]
    J. Lerner and J. Tirole, Some simple economics of open source, J. Industr. Economics 50 (2002) 197–234. Google Scholar
  18. [18]
    A. Mockus, R.T. Fielding and J. Herbsleb, A case study of open source software development: The Apache server, in: Proc. of the 22nd Internat. Conf. on Software Engineering (2000) pp. 263–272. Google Scholar
  19. [19]
    M. Mustonen, Copyleft – the economics of Linux and other open source software, Discussion paper No. 493, Department of Economics, University of Helinski. Google Scholar
  20. [20]
    P. Nilendu and T.R. Madanmohan, Competing on open source: Strategies and practice. Google Scholar
  21. [21]
    J. Sandberg, IBM will distribute Apache software for free, but charge for maintenance, Wall Street Journal (22 June 1998) B5. Google Scholar
  22. [22]
    E. von Hippel and G. von Krogh, Open source software and the private-collective innovation model: Issues for organization science. Google Scholar

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  1. 1.Pennsylvania State UniversityDuboisUSA

Personalised recommendations