Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market
Open accessAbstract
This paper discusses the economic merits of direct or indirect governmental support for open source projects. Software markets differ from standard textbook markets in three important respects that may give rise to market failures: (i) large economies of scale, (ii) crucially important innovations, (iii) significant network effects and switching costs. We analyze the differences between proprietary software and open source software with respect to these market features and ask whether open source as an alternative to proprietary software can mitigate these problems. Then we discuss the implications of various forms of governmental support for open source.
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Signaling incentives explain why open source projects tend to involve server operating systems, programming languages, and other applications aimed at sophisticated users.
“Signaling incentives therefore explain why open source projects tend to involve server operating systems, programming languages, and other applications aimed at sophisticated users (Schmidt and Schnitzer, 2002).”
From Open Source Software: The New Intellectual Property Paradigm (2006) · cites this paper as Schmidt and Schnitzer, 2002
The importance of network effects and switching costs is largely independent of whether the software is proprietary or open source.
“Schmidt and Schnitzer (2002) argue that the importance of network effects and switching costs 'is largely independent of whether the software is proprietary or open source.'”
From Open Source Software: The New Intellectual Property Paradigm (2006) · cites this paper as Schmidt and Schnitzer (2002)
Signaling is weak for useful tasks such as reporting bugs, submitting comments, suggesting new functionality, preparing documentation, building easy-to-use interfaces, providing technical support, ensuring backwards compatibility, and writing programs for utilitarian tasks like power management or wizards.
“Signaling is also weak for such useful tasks as reporting bugs, submitting comments, suggesting new functionality, preparing documentation, building easy-touse interfaces, providing technical support, ensuring backwards compatibility, and writing programs for utilitarian tasks like power management or wizards (Rossi, 2004, Osterloh and Rota, 2004, Schmidt and Schnitzer, 2002).”
From Open Source Software: The New Intellectual Property Paradigm (2006) · cites this paper as Schmidt and Schnitzer, 2002
Open code facilitates finding, diagnosing and fixing bugs.
“It facilitates finding, diagnosing and fixing bugs (Schmidt and Schnitzer, 2002).”
From Open Source Software: The New Intellectual Property Paradigm (2006) · cites this paper as Schmidt and Schnitzer, 2002
Open source software likely creates significant network externalities similar to proprietary software.
“Proprietary software creates significant network externalities, and it is hard to see why open source software would be any different. (Schmidt and Schnitzer, 2002).”
From Open Source Software: The New Intellectual Property Paradigm (2006) · cites this paper as Schmidt and Schnitzer, 2002
Cites
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Managerial Incentive Problems: A Dynamic Perspective
Holmstrom, B. (1999) · Review of Economic Studies · doi:10.1111/1467-937x.00083 · Cited by 3,172 · see citing works
Raymond, E. S. (1998) · First Monday · doi:10.5210/fm.v3i10.621 · Cited by 290 · see citing works
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Open Source Software: The New Intellectual Property Paradigm
Maurer, S., & Scotchmer, S. (2006) · NBER Working Paper No. 12148 · doi:10.3386/w12148 · Cited by 81 · see citing works
- Authors
- Schmidt, K. M., & Schnitzer, M.
- Affiliations
- Ifo Institute for Economic Research (DE)
- Centre for Economic Policy Research (GB)
- Corresponding author
- Schmidt, Klaus M.
- Venue
- SSRN Electronic Journal
- Publisher
- Elsevier BV
- Published
- 2002
- ISSN
- 1556-5068 (ISSN-L)
- OpenAlex
- W3123394132
- Cited by
- 106
- References
- 3
- Citations by year
- 2025: 2 · 2024: 2 · 2023: 1 · 2022: 2 · 2020: 1 · 2018: 2 · 2017: 1 · 2015: 4 · 2014: 7 · 2013: 1 · 2012: 1
- Type
- posted content
- Language
- en
- Open access
- green
- doi.org
- Locations
- SSRN Electronic Journal (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- OpenGrey (Institut de l'Information Scientifique et Technique) (submittedVersion)
- Topics
- Physical Sciences › Computer Science › Computer Science Applications › Open Source Software Innovations
- Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
- Social Sciences › Business, Management and Accounting › Marketing › Copyright and Intellectual Property
- Keywords
- open source software, government subsidies, software market, market failure, economies of scale, network effects, switching costs, proprietary software, software innovation, economic policy
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